Publishing Republic Act No. 6110, Amending among others Sections 91, 100, 108, 109, 110, and 113 of the National Internal Revenue Code and Inserting in Said Code a New Section (Section 118-A)

February 9, 1970 REVENUE MEMORANDUM CIRCULAR NO. 06-70 SUBJECT : Publishing Republic Act No. 6110, Amending among others Sections 91, 100, 108, 109, 110, and 113 of the National Internal Revenue Code and Inserting in Said Code a New Section (Section 118-A) TO : All Internal Revenue Officers and Other Concerned For the information and guidance of all concerned, there is quoted hereunder pertinent sections of Republic Act No. 6110, amending certain sections under Title III of the National Internal Revenue Code, as amended, relating to Estate, Inheritance and Gift Taxes, viz.: " Republic Act No . 6110 " An Act Amending Certain Provisions of the National Internal Revenue Code, As Amended " Be it enacted by the Senate and House of Representatives of the Philippines in Congress assembled : xxx xxx xxx "SEC. 17. Section ninety-one of the same Act is hereby amended to read as follows: '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 in the case of the estate tax or the heirs in the case of inheritance tax. 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, administrator or the heirs, 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. 18. Section one hundred of the same Act is hereby amended to read as follows: '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 part of the tax, at the rate of twelve per centum per annum from the due date of the tax to the date the deficiency is assessed.' "SEC. 19. Section one hundred and eight of the same Act is hereby amended to read as follows: 'SEC. 108. Imposition of tax . (a) 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 one hundred and nine. '(b) 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.' "SEC. 20. The last paragraph of Section one hundred and nine of the same Act is hereby amended to read as follows: 'SEC. 109. Rates of tax payable by donor . . . . 'The tax provided in this section shall not apply in every case where the donor makes the gift in favor of an educational and/or charitable corporation, institution, foundation, trust or philanthropic organization or research institution or organization as defined in the next sections.' "SEC. 21. Section one hundred and ten of the same Act is hereby amended to read as follows: 'SEC. 110. Rates of tax payable by donee . In addition to the gift tax imposed under the preceding section, there shall be levied a tax in the amount equal to the excess of a tax, computed in accordance with the rate schedule hereinafter set forth, on the aggregate sum of the net gifts received by each donee for such calendar year and for each of the preceding calendar years over a tax computed in accordance with the rate schedule, on the aggregate sum of the net gifts for each of the preceding calendar years received by each donee. ' Rate Schedule '(a) When the donee or beneficiary is a spouse, a legitimate, recognized natural, illegitimate or adopted child, or a legitimate descendant or ascendant, or either of the adopting parents of the donor, or the father or mother who had recognized such donor as a natural or illegitimate child, and in every case where the donee receives the property exclusively for educational or charitable purposes, there shall be collected from the donee upon the gifts received by him a tax equal to the sum of the following: Provided , however , That such portion of the gifts in favor of a spouse or a legitimate, recognized natural, illegitimate or adopted child of the donor, who is a citizen or resident of the Philippines, which is not in excess of five thousand pesos shall be exempted from this tax: Provided , further , That the total amount of the gifts received by a non-profit educational and/or charitable corporation, institution, foundation, trust, shall be exempted from the tax provided for in this section subject to the condition that not more than thirty per centum of said gifts shall be used by such donee for administration purposes. 'Two per centum upon the first twelve thousand pesos; 'Four per centum of the amount by which the net gifts exceed twelve thousand pesos and do not exceed thirty thousand pesos; 'Six per centum of the amount by which the net gifts exceed thirty thousand pesos and do not exceed fifty thousand pesos; 'Eight per centum of the amount by which the net gifts exceed fifty thousand pesos and do not exceed seventy thousand pesos; 'Twelve per centum of the amount by which the net gifts exceed seventy thousand pesos and do not exceed one hundred thousand pesos; 'Fourteen per centum of the amount by which the net gifts exceed one hundred thousand pesos and do not exceed one hundred and fifty thousand pesos; 'Sixteen per centum of the amount by which the net gifts exceed one hundred and fifty thousand pesos and do not exceed two hundred and fifty thousand pesos; 'Eighteen per centum of the amount by which the net gifts exceed two hundred and fifty thousand pesos and do not exceed five hundred thousand pesos; 'Twenty per centum of the amount by which the net gifts exceed five hundred thousand pesos and do not exceed one million pesos; and 'Twenty-two per centum of the amount by which the net gifts exceed one million pesos. 'Where the property is received for educational or charitable purposes, it shall be the duty of the person or persons in charge thereof to submit from time to time a report of the administration and use of the property to the Commissioner of Internal Revenue and within twenty days after demand therefor has been made by the said Commissioner. 'Where the gift is received by a non-profit educational and/or charitable corporation, institution, foundation, trust or philanthropic organization and/or research institution or organization it shall be the duty of the person or persons in charge thereof to submit within ninety days after the end of each calendar year a report to the Commissioner of Internal Revenue on the use and disposition of the gift received during the year which shall be subject to verification by the Commissioner. 'For the purpose of this tax, 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, without stockholders, paying no dividends, governed by trustees who receive no compensation, and devoting all its income, whether student's fees, or gifts, donations, subsidies or other forms of philanthropy, to the accomplishment and promotion of the purposes enumerated in its articles or incorporation. '(b) When the donee or beneficiary is a brother or sister who is a legitimate, acknowledged natural or illegitimate child of a common father or mother, or both, of the donor, or the children of such brother or sister, or any descendant mentioned as such in the deed and not included in sub-section (a) hereof, there shall be collected the same tax fixed in said sub-section with an increase of seventy-five per centum . '(c) When the donee or beneficiary is a relative within the sixth degree and not included in subsections (a) and (b), there shall be collected the same tax fixed in subsection (a) with an increase of one hundred and fifty per centum . '(d) When the donee or beneficiary is a relative by affinity within the same degree as those mentioned in subsections (a) and (b) with the exception of the spouse, there shall be collected the same tax fixed in subsection (a) with an increase of two hundred and twenty-five per centum . '(e) When the donee or beneficiary is a stranger, there shall be collected the same tax fixed in subsection (a) with an increase of four hundred per centum , provided that if the gifts received by him exceed five hundred thousand pesos, the excess shall be subject to tax at ninety-five per centum . 'For the purpose of this tax, strangers are deemed those relatives by consanguinity in the collateral line not within the degree of relationship recognized by law in intestate succession, and all relatives by affinity not included in subsections (a) and (b); Provided , however , That where the beneficiary is a domestic servant or a trusted employee, there shall be collected on the first two thousand pesos and five thousand pesos, respectively, the tax fixed in subsection (a) of this section and, on the excess, the tax prescribed in this subsection. In cases of property which by the desire of the donor should be divided among the poor, without the designation of any particular persons, or which should be disposed of for masses or other pious works, there shall be collected from the donee the tax at the rate fixed in this subsection upon the total aggregate amount of such gifts. 'In case the property donated is subject to the usufructuary interest, use or habitation or annuity of a third person, the tax shall be based on the value of the net gifts less that of the usufruct, use or habitation or annuity determined in accordance with the provisions of Section ninety-one.' "SEC. 22. Section one hundred and thirteen of the same Act is hereby amended to read as follows: 'SEC. 113. Valuation of gifts made in property . If the gift is made in property, the fair market value thereof at the time of the gift shall be considered the amount of the gift. In case of real property, the provisions of paragraph two, Section ninety-one shall apply to the valuation thereof. "SEC. 23. A new section is hereby inserted between Sections one hundred and eighteen and one hundred and nineteen of the same Act, to be known as Section one hundred and eighteen-A which shall read as follows: 'SEC. 118-A. Interest on Deficiency . Interest upon the amount determined as a 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 twelve per centum per annum from the due date of the tax to the date the deficiency is assessed.' xxx xxx xxx "SEC. 68. Effectivity Clause . This Act shall take effect on September 1, 1969: Provided , That where at the time of death or within six months thereafter no schedule of values as provided in Section 17 of this Act has been fixed in the areas where the properties of the decedent are located, the assessed values as shown in the tax rolls shall be considered as the fair market value, unless the contrary is shown: Provided , further , That the provisions of Sections 6, 11, 12, 13, 14, 15, and 16 of this Act shall apply to the entire taxable year in which this Act is approved: Provided , still further , That the provisions of Sections 76 and 77 of this Act shall be effective on July 1, 1970: Provided , finally , That the second paragraph of Section 358 as amended by this Act, shall be effective only for a period of four years from July 1, 1969 unless extended. "APPROVED: August 4, 1969 . . ." I. FEATURES OF THE AMENDMENTS A. Amendments , affecting estate , inheritance and gift taxes . (a) Creation of Real Property Valuation Committee . An important amendment to Section 91 is the provision for the creation of a Committee to be known as "Real Property Valuation Committee," which shall aid the Secretary of Finance in determining the value of real property in each municipality and city for purposes of computing any internal revenue tax based on the value of real property. 1. Composition , quorum . The said 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 presence of at least three members of the committee shall constitute a quorum sufficient to transact business. 2. Compensation . 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. 3. Function . The Committee 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, which schedule, if approved, shall be revised every three years. 4. Guidelines of the Committee . The Secretary of Finance shall promulgate uniform rules and regulations for the guidance of the Committee. (b) Schedule of values presumed market value . Prior to the amendment of Section 91, the assessed value of real property was presumed to be its market value. Under the amendment, the schedule of values fixed by the Department of Finance shall be considered the fair market value of real property and shall be binding upon all those concerned, unless the contrary is shown by the taxpayer. (c) Assessed value considered market value in the absence of schedule of values . Pursuant to Section 68 of Republic Act No. 6110, where at the time of death or within six months thereafter no schedule of values has been fixed in the areas where the properties of the decedent are located, the assessed values as shown in the tax rolls shall be considered as the fair market value, unless the contrary is shown. This provision necessarily applies in cases involving donor's and donee's gift taxes, since Section 113, as amended, provides that the provisions of Section 91, as amended, shall apply to valuation of gifts. Accordingly, in the absence of a schedule of values, the assessed value of the real property in the year of the donation shall be considered as the fair market value, unless the contrary is shown. (d) Rate of interest on deficiency inheritance taxes is increased from 6% to 12% . Imposition of interest on deficiency gift taxes is now provided for . By virtue of the amendment to Section 100, the rate of interest on deficiency estate and inheritance taxes has been increased from six per centum per annum to twelve per centum per annum , said interest accruing from the due date of the tax to the date of the deficiency is assessed and shall be collected as a part of the tax. There is now a specific provision of law imposing interest on deficiency gift taxes. Section 118-A, inserted between Section 118 and Section 119 of the Tax Code provides for the imposition of interest, at the rate of twelve per centum per annum from the due date of the tax to the date the deficiency is assessed, which shall be collected as part of the tax. B. Amendments affecting gift taxes only . (a) The term "individual" in Section 108 has been replaced by the term "person", which includes not only natural persons but also juridical entities, such as corporations and partnerships. Before the amendment of Section 108, corporations and other juridical entities could not be subjected to the donor's gift tax because it referred to transfer by any individual, a term obviously referring to natural persons only. However, under the law as amended, corporations and other juridical entities are now subject to the donor's gift tax on transfers made by them. (b) The amendment to Section 109 has broadened the purview of the exemption from the donor's gift tax. Prior to the amendment, only those donating to educational institutions were exempt from this tax. As amended, Section 109 exempts from the donor's gift tax not only those donating to educational institutions but also those donating to charitable corporations, institutions, foundations, trust or philanthropic organizations or research institutions or organizations as defined in Section 110. However, those donating to the Jose Rizal National Centennial Commission is no longer among the donors exempt from the donor's gift tax. (c) Correlatively, the amendment to Section 110 has also broadened the purview of the exemption from the donee's gift tax. As amended, Section 110 exempts from the donee's gift tax not only non-profit educational institutions but also charitable corporations, institutions, foundations and trusts. However, the Jose Rizal National Centennial Commission is no longer included among those exempted from this tax. (d) Section 113 has been amended by applying the provisions of Section 91, as amended, in the valuation of real property for gift tax purposes. II. EFFECTIVITY CLAUSE The above provisions of Republic Act No. 6110, relating to estate, inheritance and gift taxes took effect on September 1, 1969, except where at the time of death or within six months thereafter no schedule of values as provided for in Section 91 of the Tax Code has been fixed in the areas where the real properties of the decedent or the donor are located, in which case, the assessed values as shown in the tax rolls shall be considered as the fair market value of said properties, unless the contrary is shown. III. ENFORCEMENT All internal revenue officers and others concerned are hereby enjoined to be guided accordingly and to give this circular as wide a publicity as possible. aisa dc MISAEL P. VERA Commissioner of Internal Revenue APPROVED: CESAR VIRATA Secretary of Finance