Publishing the Amendments Effected by Presidential Decree No. 69 to Title III of the National Internal Revenue Code

January 9, 1973 REVENUE MEMORANDUM CIRCULAR NO. 03-73 SUBJECT : Publishing the Amendments Effected by Presidential Decree No. 69 to Title III of the National Internal Revenue Code TO : All Internal Revenue Officers and Others Concerned For the information and guidance of all concerned, there is published below certain sections of Title III of the National Internal Revenue Code, as amended by Presidential Decree No. 69, viz.: TITLE III. ESTATE AND DONOR'S TAXES Chapter I Estate Tax "SEC. 85. Rates of estate tax . There shall be levied, assessed, collected, and paid upon the transfer of the net estate as determined in accordance with sections 88 and 89, of every decedent, whether resident or nonresident of the Philippines, a tax based on the value of such net estate, as computed in accordance with the following schedule: IF THE NET ESTATE IS THE TAX SHALL BE OVER BUT NOT OVER PLUS OF EXCESS OVER P10,000 EXEMPT P10,000 50,000 3% P10,000 50,000 75,000 P1,200 4% 50,000 75,000 100,000 2,200 5% 75,000 100,000 150,000 3,450 10% 100,000 150,000 200,000 8,450 15% 150,000 200,000 300,000 15,950 20% 200,000 300,000 400,000 35,950 25% 300,000 400,000 500,000 60,950 30% 400,000 500,000 625,000 90,950 35% 500,000 625,000 750,000 134,700 40% 625,000 750,000 875,000 184,700 45% 750,000 875,000 1,000,000 240,950 50% 875,000 1,000,000 2,000,000 303,450 53% 1,000,000 2,000,000 3,000,000 833,450 56% 2,000,000 3,000,000 1,393,450 60% 3,000,000 "SEC. 86. Rates of Inheritance Tax . This section is hereby repealed. "SEC. 87. Rule of taxation when beneficiaries belong to different classes . This section is hereby repealed. "SEC. 89. Net estate . For purposes of the tax imposed in this Chapter, the value of the net estate shall be determined: "(a) In the case of a citizen or resident of the Philippines, by deducting from the value of the gross estate "(1) Expenses, losses, indebtedness, and taxes . Such amounts "(A) For funeral expenses in an amount equal to five per centum of the gross estate but in no case to exceed P50,000.00. "(B) For judicial expenses of the testamentary or intestate proceedings; "(C) For claims against the estate; "(D) For claims of the deceased against insolvent persons where the value of decedent's interest therein is included in the value of the gross estate; and "(E) For unpaid mortgages upon, or any indebtedness in respect to, property where the value of decedent's interest therein, undiminished by such mortgage or indebtedness, is included in the value of the gross estate, but not including any income taxes upon income received after the death of the decedent, or property taxes not accrued before his death, or any estate or inheritance taxes. The deduction herein allowed in the case of claims against the estate, unpaid mortgages, or any indebtedness shall, when founded upon a promise or agreement, be limited to the extent that they were contracted bona fide and for an adequate and full consideration in money or money's worth. There shall also be deducted losses incurred during the settlement of the estate arising from fires, storms, shipwreck, or other casualties, or from robbery, theft, or embezzlement, when such losses are not compensated for by insurance or otherwise, and if at the time of the filing of the return such losses have not been claimed as a deduction for income tax purposes in an income tax return, and provided that such losses were incurred not later than the last day for the payment of the estate tax as prescribed in subsection (a) of section ninety-five. "(2) Property previously taxed . An amount equal to the value specified below of any property forming a part of the gross estate situated in the Philippines of any person who died within five years prior to the death of the decedent, or transferred to the decedent by gift within five years prior to his death, where such property can be identified as having been received by the decedent from the donor by gift, or from such prior decedent by gift, bequest, devise, or inheritance, or which can be identified as having been acquired in exchange for property so received. "One hundred per centum of the value if the prior decedent died within one year prior to the death of the decedent, or if the property was transferred to him by gift within the same period prior to his death; "Eighty per centum of the value if the prior decedent died more than one year but not more than two years prior to the death of the decedent, or if the property was transferred to him by gift within the same period prior to his death; "Sixty per centum of the value if the prior decedent died more than two years but not more than three years prior to the death of the decedent, or if the property was transferred to him by gift within the same period prior to his death; "Forty per centum of the value if the prior decedent died more than three years but not more than four years prior to the death of the decedent, or if the property was transferred to him by gift within the same period prior to his death; and "Twenty per centum of the value if the prior decedent died more than four years but not more than five years prior to the death of the decedent, or if the property was transferred to him by gift within the same period prior to his death. "These deductions shall be allowed only where a gift tax, or estate tax imposed under this Title were finally determined and paid by or on behalf of such donor, or the estate of such prior decedent, as the case may be, and only in the amount finally determined as the value of such property in determining the value of the gift, or, the gross estate of such prior decedent, and only to the extent that the value of such property is included in the decedent's gross estate, and only if in determining the value of the net estate of the prior decedent no deduction was allowable under paragraph (2) in respect of the property or properties given in exchange therefor. Where a deduction was allowed of any mortgage or other lien in determining the gift tax, or the estate tax of the prior decedent, which were paid in whole or in part prior to the decedent's death, then the deduction allowable under said paragraph shall be reduced by the amount so paid. Such deduction allowable shall be reduced by an amount which bears the same ratio to the amounts allowed as deductions under paragraph (1), (3), and (4) of this subsection as the amount otherwise deductible under said paragraph (2) bears to the value of the decedent's estate. Where the property referred to consists of two or more items the aggregate value of such items shall be used for the purpose of computing the deduction. "(3) Transfers for public purposes . The amount of all bequests, legacies, or transfers to or for the use of the Government of the Republic of the Philippines, or any political subdivision thereof, for exclusively public purposes. "(b) Deductions allowed to nonresident estates . In the case of a nonresident not a citizen of the Philippines, by deducting from the value of that part of his gross estate which at the time of his death is situated in the Philippines "(1) Expenses, losses, indebtedness, and taxes . That proportion of the deductions specified in paragraph (1) of subsection (a) of this section which the value of such part bears to the value of his entire gross estate wherever situated; "(2) Property previously taxed . An amount equal to the value specified below of any property forming a part of the gross estate situated in the Philippines of any person who died within five years prior to the death of the decedent, or transferred to the decedent by gift within five years prior to his death, where such property can be identified as having been received by the decedent from the donor by gift, or from such prior decedent by gift, bequest, devise, or inheritance, or which can be identified as having been acquired in exchange for property so received: "One hundred per centum of the value if the prior decedent died within one year prior to the death of the decedent, or if the property was transferred to him by gift within the same period prior to his death; "Eighty per centum of the value if the prior decedent died more than one year but not more than two years prior to the death of the decedent, or if the property was transferred to him by gift within the same period prior to his death; "Sixty per centum of the value if the prior decedent died more than two years but not more than three years prior to the death of the decedent, or if the property was transferred to him by gift within the same period prior to his death; "Forty per centum of the value if the prior decedent died more than three years but not more than four years prior to the death of the decedent, or if the property was transferred to him by gift within the same period prior to his death; and "Twenty per centum of the value if the prior decedent died more than four years but not more than five years prior to the death of the decedent, or if the property was transferred to him by gift within the same period prior to his death. "These deductions shall be allowed only where a gift tax, or estate tax imposed under this Title were finally determined and paid by or on behalf of such donor, or the estate of such prior decedent, as the case may be, and only in the amount finally determined as the value of such property in determining the value of the gift, or the gross estate of such prior decedent, and only to the extent that the value of such property is included in that part of the decedent's gross estate which at the time of his death is situated in the Philippines, and only if in determining the value of the net estate of the prior decedent no deduction was allowable under paragraph (2) of subsection (b) of this section in respect of the property or properties given in exchange therefor. Where a deduction was allowed of any mortgage or other lien in determining the gift tax, or the estate tax of the prior decedent, which were paid in whole or in part prior to the decedent's death, then the deduction allowable under said paragraph shall be reduced by the amount so paid. Such deduction allowable shall be reduced by an amount which bears the same ratio to the amounts allowed as deductions under paragraphs (1) and (3) of this subsection as the amount otherwise deducted under paragraph (2) bears to the value of that part of the decedent's gross estate which at the time of his death is situated in the Philippines. Where the property referred to consists of two or more items the aggregate value of such items shall be used for the purpose of computing the deduction. "(3) Transfers for public use . The amount of all bequests, legacies, devises, or transfers to or for the use of the use of the Government of the Republic of the Philippines, or any political subdivision thereof, for exclusively public purposes. "(c) Share in the conjugal property . The net share of the surviving spouse in the conjugal partnership property as diminished by the obligations properly chargeable to such property shall, for the purpose of this section, be deducted from the net estate of the decedent. "(d) Miscellaneous provisions . (1) No deduction shall be allowed in the case of a nonresident not a citizen of the Philippines unless the executor, administrator, or anyone of the heirs, as the case may be, includes in the return required to be filed under section 93 the value at the time of his death of that part of the gross estate of the non-resident not situated in the Philippines. "(2) For the purpose of this Chapter, stock in a domestic corporation owned and held by a nonresident not a citizen of the Philippines shall be deemed property within the Philippines, and any property of which the decedent has made a transfer by trust or otherwise, within the meaning of subsection (b) or (c) of section 88 of this Chapter, shall be deemed to be situated in the Philippines if so situated either at the time of the transfer or at the time of the decedent's death. "SEC. 91. Determination of value of usufructs, annuities, and other property . To determine the value of the right of usufruct, use of habitation, as well as that of annuity, there shall be taken into account the probable life of the beneficiary in accordance with the American Tropical Experience Table calculated at eight per centum annual interest. "The estate shall be appraised at its fair market value as of the time of death, or as of six months thereafter, at the election of the executor or administrator. However, for the purpose of determining the value of real property, the value as of the time of death or, at the election of the executor or administrator, as of six months after death, as shown in the schedule of values fixed by the Department of Finance, shall be considered as the fair market value, and unless the contrary is shown by the taxpayer, the schedule shall be binding upon all concerned for purposes of computing any internal revenue tax based on the value of real property. "For this purpose, a real property valuation committee shall be created in the Department of Finance which shall submit to the Secretary of Finance a schedule of percentage adjustment of the assessed value of real property in each municipality and city after due notice and hearing. This schedule shall be revised every three years. "The Real Property Valuation Committee shall be composed of a chairman and four members, two of whom shall come from the private sector who shall be appointed by the Secretary of Finance. The representatives from the private sector shall hold office for six years. One representative shall be recommended by the Board of Realtors of the Philippines and the other representative shall be recommended by the registered Homeowners Association of the Philippines, but in the absence of either or both associations, the Secretary of Finance shall appoint any qualified real property owner or owners. "The Secretary of Finance shall promulgate uniform rules and regulations for the guidance of the real property valuation committee in the discharge of their functions under this section. The presence of at least three members of the committee shall constitute a quorum sufficient to transact business. The members of the committee representing the private sector shall be entitled to a per diem of thirty pesos for each day of session actually attended, plus actual and ordinary traveling expenses from and to his usual place of residence, to be paid from the appropriations of the Department of Finance. The other members of the committee who are government officials shall serve without additional compensation. "SEC. 92. Notice of death to be filed . In all cases of transfers subject to tax, or where, though exempt from tax, the gross value of the estate exceeds three thousand pesos, the executor, administrator, or any of the legal heirs, as the case may be, within two months after the decedent's death, or within a like period after qualifying as such executor or administrator, shall give a written notice thereof to the Commissioner of Internal Revenue. "SEC. 93. Returns . "(a) Requirements . In all cases of transfers subject to tax, or where, though exempt from tax, the gross value of the estate exceeds three thousand pesos, the executor, or administrator, or any of the legal heirs, as the case may be, shall file a return under oath in duplicate, setting forth (1) the value of the gross estate of the decedent at the time of his death, or in case of a nonresident not a citizen of the Philippines, of that part of his gross estate situated in the Philippines; (2) the deductions allowed from gross estate in determining net estate as defined in section eighty-nine; (3) such part of such information as may at the time be ascertainable and such supplemental data as may be necessary to establish the correct taxes: Provided , however , That estate returns showing a gross value of fifty thousand pesos or more shall be accompanied with a statement of (1) itemized assets of the decedent with their corresponding gross value at the time of his death, or, in case of a nonresident not a citizen of the Philippines, of that part of his gross estate situated in the Philippines; (2) itemized deductions from gross estate allowed in section eighty-nine; and, (3) the amount of tax due whether paid or still due and outstanding duly certified to by certified public accountants. "(b) Time for filing . For purposes of determining the estate tax provided for in section eighty-five, the return required under the preceding subsection (a) shall be filed within six months after the decedent's death; but if judicial testamentary or intestate proceedings shall be instituted for the settlement of the decedent's estate prior to the expiration of said period, the return must be filed within twelve months after the decedent's death. "A certified copy of the schedule of partition and the order of the court approving the same shall be furnished the Commissioner of Internal Revenue by the clerk of court within thirty days after the promulgation of such order. "(c) Extension of time . The Commissioner of Internal Revenue shall have authority to grant, in meritorious cases, a reasonable extension not exceeding thirty days for filing the return. "(d) Place for filing . The return required under subsection (a) shall be filed with the Commissioner of Internal Revenue, or with the Regional Director, revenue district officer, or collection agent of the city or municipality in which the decedent was domiciled at the time of his death. "SEC. 95. Payment of tax . "(a) Time of payment . "(1) General rule . The estate tax imposed by section 85 shall be due and payable within nine months after the decedent's death, and shall be paid by the executor, administrator, or the heirs to the Commissioner of Internal Revenue or to the regional director, revenue district officer or collection agent of the city or municipality in which the decedent was domiciled at the time of his death. "(2) Exception . In case judicial testamentary or intestate proceedings shall be instituted for the settlement of the decedent's estate prior to the expiration of six months after his death, the estate tax shall be due and payable within twenty-one months after the decedent's death. "(b) Extension of time . When the Commissioner of Internal Revenue finds that the payment on the due date of the estate tax or of any part thereof would impose undue hardship upon the estate or any of the heirs, he may extend the time for payment of such tax or any part thereof not to exceed five years in case the estate is settled through the courts, or two years in case the estate is settled extrajudicially. In such case, the amount in respect of which the extension is granted shall be paid on or before the date of the expiration of the period of the extension, and the running of the statute of limitation for assessment as provided in section 331 of this Code shall be suspended for the period of any such extension. "Where the taxes are assessed by reason of negligence, intentional disregard of rules and regulations, or fraud on the part of the taxpayer, no extension will be granted by the Commissioner. "If an extension is granted, the Commissioner of Internal Revenue may require the executor, administrator, or beneficiary to furnish a bond in such amount, not exceeding double the amount of the tax and with such sureties, as the Commissioner deems necessary, conditioned upon the payment of the said tax in accordance with the terms of the extension. "(c) Liability for payment . The estate tax imposed by section 85 shall be paid by the executor or administrator before delivery to any beneficiary of his distributive share of the estate. Such beneficiary shall, to the extent of his distributive share of the estate, be subsidiarily liable for the payment of such portion of the estate tax as his distributive share bears to the value of the total net estate. "For the purpose of this Chapter, the term 'executor' or 'administrator' means the executor or administrator of the decedent, or, if there is no executor or administrator appointed, qualified, and acting within the Philippines, then any person in actual or constructive possession of any property of the decedent. "SEC. 99. Interest on extended payment . (a) Tax shown on the return . If the time for the payment of the estate tax or any part thereof is extended as provided in subsection (b) of Section 95, there shall be collected, as a part of such amount, interest thereon at the rate of fourteen per centumper annum , from the day following the due date of the tax to the expiration of the period of the extension. "(b) Deficiency . In case an extension for the payment of a deficiency is granted, there shall be collected, as a part of the tax, interest on the part of the deficiency the time for the payment of which is so extended, at the rate of fourteen per centum per annum for the period of the extension. "SEC. 100. Interest on deficiency . Interest upon the amount determined as a deficiency shall be assessed at the same time as the deficiency, shall be paid upon notice and demand from the Commissioner of Internal Revenue, and shall be collected as a part of the tax, at the rate of fourteen per centum per annum , from the due date of the tax to the date the deficiency is assessed: Provided , That the maximum amount that may be collected as interest on deficiency shall in no case exceed the amount corresponding to a period of three years, the present provisions regarding prescription to the contrary notwithstanding. "SEC. 101. Additions to the tax in case of non-payment . "(a) Tax shown on the return . "(1) Payment not extended . Where the amount of the tax imposed by this Chapter, or any part of such amount is not paid on the due date of the tax, there shall be collected as a part of the tax, interest upon such unpaid amount at the rate of fourteen per centum per annum , from the due date until it is paid: Provided , that the maximum amount that may be collected as interest on delinquency shall in no case exceed the amount corresponding to a period of three years, the present provisions regarding prescription to the contrary notwithstanding. "(2) Payment extended . Where an extension of time for payment of the amount of the tax has been granted, and the amount, the time for the payment of which has been extended, and the interest thereon determined under subsection (2) of Section 99, is not paid in full prior to the expiration of the period of the extension, interest at the rate of fourteen per centum per annum , shall be collected on such unpaid amount from the date the same was originally due until it is paid. "SEC. 103. Payment before delivery by executor or administrator . No judge shall authorize the executor or judicial administrator to deliver a distributive share to any party interested in the estate unless a certification from the Commissioner that the estate tax has been paid is shown. "SEC. 104. Duties of certain officers and debtors . Registers of deeds shall not register in the registry of property any document transferring real property or real rights therein or any chattel mortgage, by way of gifts inter vivos or mortis causa , legacy or inheritance, unless a certification from the Commissioner that the tax fixed in this Title and actually due thereon had been paid is shown. And they shall immediately notify the Commissioner, Regional Director, Revenue District Officer or collection agent of the city or municipality where their offices are located, of the nonpayment of the tax discovered by them. Any lawyer, notary public, or any Government officer who, by reason of his official duties, intervenes in the preparation or acknowledgment of documents regarding partition or disposal of donation inter vivos or mortis causa , legacy or inheritance, shall have the duty of furnishing the Commissioner, Regional Director, Revenue District Officer or Collection Agent of the place where he may have his principal office, with copies of such documents and any information whatsoever which may facilitate the collection of the aforementioned tax. Neither shall a debtor of a deceased pay his debts to the heirs, legatees, executor, or administrator of his creditor, unless the certification of the Commissioner that the tax fixed in this Chapter had been paid is shown; but he may pay the executor or judicial administrator without said certification if the credit is included in the inventory of the estate of the deceased. "SEC. 105. Restitution of tax upon satisfaction of outstanding obligations . If, after the payment of the estate tax, new obligations of the decedent shall appear, and the persons interested shall have satisfied them by order of the court, they shall have a right to the restitution of the proportional part of the tax paid. "SEC. 106. Payment of tax antecedent to the transfer of shares, bonds, or rights . There shall not be transferred to any new owner in the books of any corporation, sociedad anonima , partnership, business, or industry organized or established in the Philippines, any shares, obligations, bonds or rights by way of gift inter vivos or mortis causa , legacy, or inheritance unless a certification from the Commissioner that the taxes fixed in this Title and due thereon have been paid is shown. "SEC. 107. Specific penalties . (a) Any person required under this Chapter or regulations made under authority thereof to pay the tax, make a return, keep any records, or supply any information, for the purposes of the computation, assessment, or collection of any tax imposed by this Chapter, who fails to pay such tax, make such return, keep such records, or supply such information, at the time or times required by this Chapter or regulations, shall, in addition to other penalties provided herein, be fined not more than two thousand pesos or imprisoned for not more than six months, or both. "(b) Any person required under this Chapter to make, render, sign, or verify any return, or to supply any information, who makes any false or fraudulent return or statement with intent to defeat or evade the assessment required by this Chapter to be made, shall, in addition to other penalties provided herein, be fined not more than four thousand pesos or imprisoned for not more than one year, or both. "(c) Any executor or administrator who shall deliver or distribute to an heir, legatee, devisee, donee, or beneficiary any real or personal property, credit, right, or franchise, and any officer, manager or employee of any corporation, firm or association, sociedad anonima , partnership, business or industry who transfers in its books to any new owner any share, obligation, bond, or right, pertaining to an estate or inheritance or gift subject to the taxes imposed in this Title without the certification from the Commissioner that their payment being shown, shall be fined not more than five thousand pesos or imprisoned for not more than one year, or both. "(d) Any administrator, executor, donee, legatee, or heir who conceals any goods, rights, credits, or transfers subject to the taxes imposed in this Title shall be punished by a fine of not less than twenty-five per centum of the value of that which he may have concealed, nor more than said value, or by imprisonment for not more than one year, or both. "SEC. 109. Rates of tax payable by donor . The tax for each calendar year shall be computed on the basis of the total net gifts made during the calendar year, in accordance with the following schedule: If the net gift is The tax shall be Over But not over Plus of excess over P 1,000 Exempt 1,000 50,000 1.5% P1,000 50,000 75,000 735 2.5% 50,000 75,000 100,000 1,360 3% 75,000 100,000 150,000 2,110 6% 100,000 150,000 200,000 5,110 9% 150,000 200,000 300,000 9,610 12% 200,000 300,000 400,000 21,610 15% 300,000 400,000 500,000 36,610 18% 400,000 500,000 625,000 54,610 21% 500,000 625,000 750,000 80,860 24% 625,000 750,000 875,000 110,860 28% 750,000 875,000 1,000,000 145,860 32% 875,000 1,000,000 2,000,000 185,860 36% 1,000,000 2,000,000 3,000,000 545,860 38% 2,000,000 3,000,000 925,860 40% 3,000,000 "SEC. 110. Rates of tax payable by donee . This section is hereby repealed. "SEC. 112. Exemption of certain gifts . The following gifts or donations shall be exempt from the tax provided for in this chapter: "(a) In the case of gifts made by a resident : "(1) Dowries or gifts made on account of marriage and before its celebration or within one year thereafter by parents to each of their legitimate, recognized natural or adopted children to the extent of the first ten thousand pesos; "(2) Gifts made to or for the use of the National Government or any entity created by any of its agencies which is not conducted for profit, or to any political subdivision of the said Government; and "(3) Gifts in favor of an educational and/or charitable or religious corporation, institution, foundation, trust or philanthropic organization or research institution or organization: Provided , however , That not more than thirty per centum of said gifts shall be used by such donee for administration purposes. "For the purpose of this exemption, a non-profit educational and/or charitable corporation, institution, foundation, trust or philanthropic organization and/or research institution or organization is a school, college or university and/or charitable corporation, foundation, trust or philanthropic organization and/or research institution, or organization, incorporated as a non-stock entity, paying no dividends, governed by trustees who receive no compensation, and devoting all its income, whether students' fees, or gifts, donations, subsidies or other forms of philanthropy, to the accomplishment and promotion of the purposes enumerated in its articles of incorporation, "(b) In the case of gifts made by a nonresident not a citizen of the Philippines : "(1) Gifts made to or for the use of the National Government or any entity created by any of its agencies which is not conducted for profit, or to any political subdivision of the said Government; and "(2) Gifts in favor of an educational and/or charitable or religious corporation, institution, foundation, trust or philanthropic organization or research institution or organization: Provided , however , That not more than thirty per centum of said gifts shall be used by such donee for administration purposes. "SEC. 114. Notice of donation to be filed . This section is hereby repealed. "SEC. 115. Returns . "(a) Requirements . Any individual who makes any transfer by gift (except those which, under section 112, are exempt from the tax provided for in this Chapter) shall, for the purpose of the said tax, make a return under oath in duplicate. The return shall set forth (1) each gift made during the calendar year which is to be included in computing net gifts; (2) the deductions claimed and allowable; (3) any previous net gifts made during the same calendar year; (4) the name of the donee; and (5) such further information as may be required by regulations made pursuant to law. "(b) Time and place of filing . The return of the donor required in this section shall be filed within thirty days after the date the gift is made, with the Commissioner, Regional Director, Revenue District Officer, or Collection Agent of the city or municipality in which the donor was domiciled at the time of the transfer. "(c) Extension of time for filing . The Commissioner shall have authority to grant, in meritorious cases, a reasonable extension not exceeding thirty days for filing the return required under this section. "SEC. 116. Payment of tax . "(a) Time of payment . The donor's tax imposed by section one hundred nine shall be paid at the time the return is filed. The tax shall be paid by the donor to the Commissioner, Regional Director, Revenue District Officer, or Collection Agent of the city or municipality of which the donor is a resident. "(b) Extension of time . When the Commissioner finds that the payment on the due date of the tax or of any part of the said amount would impose undue hardship upon the donor, the Commissioner may extend the time for payment thereof not to exceed six months from the date prescribed for the payment of the tax. In such case, the amount in respect of which the extension is granted shall be paid on or before the day of the expiration of the period of the extension. "Where the tax is assessed by reason of negligence, intentional disregard of rules and regulations or fraud on the part of the taxpayer, no extension shall be granted by the Commissioner. "If an extension is granted, the Commissioner may require the donor to furnish a bond in such amount, not exceeding double the amount of the tax, and with such sureties, as the Commissioner deems necessary, conditioned upon the payment of the said tax in accordance with the terms of the extension. "SEC. 117. Examination of return and determination of tax . As soon as practicable, after the return is filed, the Commissioner shall examine it and shall determine the correct amount of the tax. "SEC. 118. Interest on extended payments . (a) Tax shown on the return . If the time for the payment of the amount determined as the tax by the donor is extended under the authority of subsection (b) of section 116, there shall be collected, as a part of such amount, interest thereon at the rate of fourteen per centum, per annum , from the date when such payment should have been made if no extension has been granted, until the expiration of the period of the extension. ''(b) Deficiency . In case an extension for the payment of a deficiency is granted, there shall be collected, as a part of the tax, interest on the part of the deficiency the time for payment of which is so extended, at the rate of fourteen per centum per annum , for the period of the extension. "SEC. 118-A. Interest on deficiency . Interest upon the amount determined as deficiency, shall be paid upon notice and demand from the Commissioner, and shall be collected as a part of the tax, at the rate of fourteen per centum per annum , from the due date of the tax to the date the deficiency is assessed: Provided , That the maximum amount that may be collected as interest on deficiency shall in no case exceed the amount corresponding to a period of three years, the present provisions regarding prescription to the contrary notwithstanding. "SEC. 119. Additions to the tax in case of nonpayment . "(a) Tax shown on the return . "(1) Payment not extended . Where the amount of the tax determine by the donor as the tax or any part of such amount is not paid on the due date of the tax, there shall be collected as a part of the tax, interest upon such unpaid amount at the rate of fourteen per centum per annum , from the due date until it is paid: Provided , That the maximum amount that may be collected as interest on delinquency shall in no case exceed the amount corresponding to a period of three years, the present provisions regarding prescription to the contrary notwithstanding. "(2) Payment extended . Where an extension of time for payment of the amount so determined as the tax by the donor has been granted, and the amount, the time for the payment of which has been extended and the interest thereon determined under subsection (a) of section 118 is not paid in full prior to the expiration of the period of the extension, interest at the rate of fourteen per centum per annum , shall be collected on such unpaid amount from the date when the same was originally due until it is paid. "(b) Deficiency . "(1) Payment not extended . Where a deficiency, or any interest assessed in connection therewith, or any addition to the tax provided for in section 120 is not paid in full within thirty days from the date of the notice and demand from the Commissioner, there shall be collected as part of the tax, interest upon the unpaid amount at the rate of fourteen per centum per annum , from the date of such notice and demand until it is paid: Provided , That the maximum amount that may be collected as interest on delinquency shall in no case exceed the amount corresponding to a period of three years, the present provisions regarding prescription to the contrary notwithstanding. "(2) Payment extended . If any part of the deficiency the time for payment of which is extended is not paid in accordance with the terms of the extension, there shall be collected, as a part of the tax, interest on such unpaid amount at the rate of fourteen per centum per annum , from the date the same was originally due until it is paid. "(c) Surcharge . If any amount of the tax included in the notice and demand from the Commissioner is not paid in full within thirty days after such notice and demand, there shall be collected in addition to the interest prescribed above and as part of the tax a surcharge of five per centum of the unpaid amount. "SEC. 122. Definitions . For the purpose of this Title the terms 'gross estate' and 'gift' include real estate and tangible personal property, or mixed, physically located in the Philippines; franchise which must be exercised in the Philippines; shares, obligations, or bonds issued by any corporation or sociedad anonima organized or constituted in the Philippines in accordance with its laws; shares, obligations, or bonds issued by any foreign corporation eighty-five per centum of the business of which is located in the Philippines; shares, obligations, or bonds issued by any foreign corporation if such shares, obligations, or bonds have acquired a business situs in the Philippines; shares or rights in any partnership, business or industry established in the Philippines; or any personal property, whether tangible or intangible, located in the Philippines: Provided , however , That in the case of a resident, the transmission or transfer of any intangible personal property, regardless of its location, is subject to the taxes prescribed in this Title: 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. "The term 'deficiency' means (1) the amount by which the tax imposed by this Chapter exceeds the amount shown as the tax by the donor upon his return; but the amount so shown on the return shall first be increased by the amounts previously assessed (or collected without assessment) as a deficiency, and decreased by the amounts previously abated, refunded, or otherwise repaid in respect of such tax; or (2) if no amount is shown as the tax by the donor upon his return, or if no return is made by the donor, then the amount by which the tax exceeds the amounts previously assessed (or collected without assessment) as a deficiency; but such amounts previously assessed, or collected without assessment, shall first be decreased by the amounts previously abated, refunded, or otherwise repaid in respect of such tax." FEATURES OF THE AMENDMENTS CHAPTER I ESTATE TAX Amendments to Section 85 : Rates of estate tax . New and different brackets of rate schedule has been adopted, and the rates of estate tax have increased, from the progressive rates of 3% to 15% under the old law to the progressive rates of 3% to 60%. Amendment to Section 86 : Rates of inheritance tax . This section was repealed because the estate and inheritance taxes, previously imposed on the transfer of the net estate of a decedent, have been integrated into a single tax, the estate tax. It is also partly by reason of this integration that the rates of estate tax were increased. The repeal of this section also abolished the classification of heirs, which is the logical consequence of the abolition of the inheritance tax. Amendment to Section 87 : Rate of taxation where beneficiaries belong to different classes . This section was repealed because there is no need for it, classification of heirs having been removed by the amendment of Section 86. Amendments to Section 89 : Net estate . As amended, subsections (a)(1)(A) of this Section provides for two limitations on the deduction of funeral expenses, namely: (1) said expenses should be only 5% of the gross estate; and (2) the amount thereof should not exceed P50,000.00. In other words, the amount allowable as funeral expenses is 5% of the gross estate, but not exceeding P50,000.00. Before the amendment, the only limitation on the deduction of funeral expenses is that it should not exceed 5% of the gross estate. Thus, if the gross estate was P2,000,000.00, the amount of P100,000.00 could be deducted as funeral expenses. However, under the present law, only P50,000.00 can be deducted, said amount being the maximum amount allowable as funeral expenses. Subsection (a)(3) of this section was amended by deleting therefrom that provision which releases the amount of the bequests, legacies, devises or transfers to the Republic of the Philippines by the amount of the taxes which, by the terms of the will of the decedent or by law, are payable out of such bequests, legacies or devises, said provision being no longer necessary in view of the repeal of Section 86, resulting in the abolition of the inheritance tax. A similar provision in subsection (b)(3) was also deleted for the same reason. Amendment to Section 91 : Determination of value of usufructs, annuities and other property . The only amendment to this Section is the deletion from the second paragraph thereof of the phrase "or the heirs in the case of inheritance tax", the phrase being no longer applicable as the inheritance tax has been abolished. Amendment to Section 92 : Notice of death to be filed . The amendment to this section consists merely of the deletion therefrom of the term "inheritance", said term being no longer applicable under the present system of estate taxation. Amendment to Section 93 : Returns . Subsections (a) and (b) of this section was amended by deleting therefrom all references to inheritance and inheritance tax, as said terms are no longer applicable. Conformably with existing organizational set-up of the Bureau, subsection (d) of this Section was amended, by directing the filing of the estate tax return with (1) the Commissioner of Internal Revenue; or (2) the Regional Director; or (3) the Revenue District Officer; or (4) the Collection Agent of the city or municipality in which the decedent was domiciled at the time of his death. Amendment to Section 95 : Payment of tax . Subsections (a)(1) and (2), (b) and (c) were amended by removing therefrom all references to the inheritance tax in keeping with the new system of estate taxation. Subsection (a)(1) was furthermore amended by specifying the officials with whom payment of the estate tax shall be made, namely: (1) the Commissioner of Internal Revenue; or (2) the Regional Director; or (3) the Revenue District Officer; or (4) the Collection Agent of the city or municipality in which the decedent was domiciled at the time of his death. Subsection (c) of this section was amended by making any beneficiary of the estate subsidiarily liable for such portion of the estate tax as his distributive share bears to the total value of the total net estate. Amendment to Section 99 : Interest on extended payment . Subsections (a) and (b) was amended by increasing the rate of interest on extended payment of the estate tax shown on the return and on the deficiency estate tax, from 6% to 14% per annum. The other amendment to subsection (a) is the deletion therefrom of references to inheritance tax, for the simple reason that the inheritance tax has been abolished. Amendment to Section 100 : Interest on deficiency . This section was amended by (a) increasing the rate of interest on deficiency estate tax from 12% to 14% per annum; and (b) limiting the maximum amount of interest imposable on such deficiency to an amount equivalent to interest for three (3) years, or a total of 42%. Amendments to Section 101 : Additions to the tax in case of non-payment . The amendments to this section are similar to those of Section 100, which are: (a) the rate of interest on delinquent estate tax has been increased from 1% a month or 12% per annum to 14% per annum; and (b) delinquency interest impossible is limited to an amount equivalent to interests for three years, or 42%. In the case of extended payment, the interest on the amount remaining unpaid after the expiration of the extended period has likewise been increased from 1% a month or 12% per annum to 14% per annum. The other amendment to this section consists merely of deletions of all references to the inheritance tax. Amendment to Section 103 : Payment before delivery by executor or administrator . Under the amendment to this section, a judge is expressly directed not to authorize the delivery of the share of any beneficiary of the estate unless a certification from the Commissioner that the estate tax has been paid is presented. Before such amendment, the presentation of any receipt showing payment of estate and inheritance taxes was considered by judges as sufficient basis for authorizing delivery of the share of the heirs or beneficiary. However, because the amounts paid under the receipts presented to the Court represent taxes as per return, it was often discovered that the amounts paid under said receipts represent but a small portion of the taxes actually due from the estate and heirs or beneficiaries; and because discovery was often made after partition of the estate and delivery of the shares of the heirs and beneficiaries, the Bureau has been encountering difficulties in the collection of transfer taxes. To solve this problem, Section 103 was amended by prohibiting the Judge concerned from authorizing delivery of the distributive share of any party interested in the estate unless there is presented to him a certification from the Commissioner of Internal Revenue that the estate tax has been paid. Amendment to Section 104 : Duties of certain officers and debtors . The amendment to this Section is similar to that of Section 103. Register of Deeds are now prohibited from registering in the registry of property any document transferring real property or real rights therein or any chattel mortgage, by way of gifts inter vivos or mortis causa , legacy or inheritance unless there is submitted to them a certification from the Commissioner of Internal Revenue that the tax due on such transfer of real property or real right has been paid. The presentation of mere receipts showing payment of the donor's gift tax or estate tax shall not be considered sufficient authority for registering such transfer of real property or real right or chattel mortgage. The Register of Deeds concerned is required by law to demand the submission of a certification from the Commissioner of Internal Revenue that the tax due on such transfer has been paid. Likewise, the debtor of a deceased is required to ask for such certification of payment before paying his debt to the heir, legatee, executor or administrator of his creditor. However, he is allowed to pay the executor or judicial administrator without the said certification if the credit is included in the inventory of the estate of the deceased. This section was also amended by mentioning the proper officials (a) to be notified of the non-payment of the tax due on account of the above-described transfer of real property or real right or chattel mortgage; and (b) to be furnished with copies of documents covering partition of estate, or disposal of property by donation inter vivos or mortis causa . Amendment to Section 105 : Restitution of tax upon satisfaction of outstanding obligations . The only amendments to this section are: (a) the term "taxes" has been changed to "estate tax", and the obvious reason is because transfer taxes have been integrated into one tax the estate tax; and (b) the term "testator" is now "decedent", the latter being the correct term. "Testator" is a narrow term and refers only to a decedent leaving a will. The law is intended to apply to all cases, irrespective of whether or not the deceased left a will. Hence, the use of the term "decedent" instead of "testator". Amendment to Section 106 : Payment of tax antecedent to the transfer of shares, bond, or rights . The amendment to this section is similar to the amendments to sections 103 and 104. The certification of the Commissioner of Internal Revenue that the tax due has been paid, and not mere receipts of payment, must be submitted before transfer of any shares, obligations, bonds or rights by way of gifts inter vivos or mortis causa , legacy, or inheritance can be registered in the books of any corporation, sociedad anonima, partnership, business or industry organized or established in the Philippines. Amendment to Section 107 : Specific penalties . Only paragraphs (c) and (d) of this section were amended. Paragraph (c) was amended by using the phrase "certification of payment from the Commissioner" instead of the phrase "showing of payment of taxes", to conform with the amendments to Sections 103 and 106. Another amendment is the reference to the taxes imposed "in this Title" instead of "in this Chapter", in order to include within the purview of the said paragraphs cases involving the donor's tax. Paragraph (d) of this section was likewise amended, the phrase "in this Title" taking the place of the phrase "in this Chapter", for the purpose of including within the purview of this paragraph cases involving the donor's tax. CHAPTER II DONOR'S TAX Amendment to Section 109 : Rates of tax payable by donor . The amendment modified the cumulation of the tax from "for all years in continuity" to "for each calendar period" only. The rates of tax and the graduation of gifts within each rate bracket were modified to approximately absorb the donee's tax which was integrated into a single donor's tax. The integrated gift tax, however, on the basis of the new rate schedule, produces a tax comparatively lower to the combined amount of the donor's and donee's gift taxes before the amendment. Amendment to Section 110 : Rates of tax payable by donee . This section was repealed in view of the integration of the donee's tax with the donor's tax. Amendment to Section 112 : Exemption of certain gifts . The former provisions of paragraph 2 of subsection (a) which exempted certain gifts to persons other than the spouse and children of the donor have been repealed and the provisions of paragraph (3), exempting from tax gifts to the National Government, its agencies and political subdivision, is now paragraph 2 of said subsection. Paragraph 3 now covers the exemption from tax of gifts to educational and/or charitable or religious corporations, institution, foundation, trust or philanthropic organization or research institution or organization. Subsection (b) was amended by adding thereto paragraph (2), which exempts from tax gifts made by non-resident aliens to educational and/or charitable or religious institutions, or research institution. Amendment to Section 114 : Notice of donation to be filed . This section was repealed. Inasmuch as the gift tax is now payable within 30 days after the gift is made and the return filed within the same period, it is no longer necessary to require the filing of notice of donation. Amendment to Section 115 . Returns . Subsection (a) was amended to remove unnecessary provisions thereof and to conform with the new system of taxing gifts. It enumerates the information required of the donor. The provisions of subsection (b) were repealed in view of the repeal of the donee's tax, and the provisions of subsection (c) transposed thereto, as amended. Under the amendment, the donor's return must be filed within 30 days after the date the gift is made and conformably with the existing organizational set-up of the Bureau, returns are required to be filed with the Commissioner, Regional Director, Rev. Dist. Officer or Collection Agent of the city or municipality in which the donor was domiciled at the time of the transfer. Subsection (c) now contains the provisions of former, subsection (d) which was amended by removing any referral to the donee. Subsection (d) was repealed. Amendment to Section 116 : Payment of tax . As amended, subsection (a) requires payment of the donor's tax at the time the return is filed, which should be within thirty (30) days after the gift is made. Before the amendment, gift taxes were payable on or before the 15th day of May following the close of the calendar year. The said amendment also specified the officials with whom the donor's tax shall be paid, conformably with the existing organizational set-up of the Bureau. Any referral to donee's tax was removed. The amendment to subsection (b) consists merely of the deletion of reference to the donee's tax. Subsection (c) which provides for voluntary payment was repealed, the provision thereof being unnecessary. Amendment to Section 117 : Examination of return and determination of tax . The amendment to this section consists also solely of the removal of any reference to the donee's tax. Amendments to Section 118 : Interest on extended payments . The amendments to subsections (a) and (b) of this section removed all references to the donee's tax and increased the interest on extended payments for both the tax shown on the return or on the deficiency tax, from 6% to 14% per annum Amendment to Section 118-A : Interest on deficiency . The amendment merely increased the interest from 12% to 14% and limited the maximum amount of interest imposable on deficiency donor's tax to an amount corresponding to a period of three years, or 42%. Amendment to Section 119 : Additions to the tax in case of non-payment . All subsections of this section, a, b and c were amended by deleting all references to the donee's tax. Sections (a) and (b) were also amended by increasing the interest rate on delinquency and on extended payment of the tax shown on the return, as well as on deficiency, from 1% a month to 14% per annum but limiting the maximum interest imposable, except on extended payment of the deficiency which runs for the duration of the extension, to an amount corresponding to a period of 3 years, or 42%. Amendment to Section 122 : Definitions . The only amendment to this section is the deletion from the second paragraph thereof of the term "donee", the donee no longer being subject to the gift tax. Effectivity All of the amendments to Title III of the National Internal Revenue Code takes effect on January 1, 1973. Enforcement All internal revenue officers and others concerned are enjoined to be guided accordingly and to give this circular as wide a publicity as possible. MISAEL P. VERA Commissioner of Internal Revenue APPROVED: CESAR VIRATA Secretary of Finance