Tax Rates According to Beneficiary Relationship
- Surviving spouse, legitimate or recognized natural/adopted child, or legitimate descendants taxed at progressive rates from 1% to 4% based on value.
- Legitimate parents, siblings, or recognized natural parents pay 100% surcharge on above rates.
- Other relatives incur 200% surcharge on basic rates.
- Strangers pay a 300% surcharge on basic rates.
Property Subject to Tax
- Real property and rights located within the Philippines.
- Franchises exercised in the Philippines.
- Shares, bonds, or obligations of Philippine corporations/sociedades anonimas.
- Shares or rights in Philippine partnerships, businesses, or industries.
- Personal property located in the Philippines.
Exemptions
- Portions of the surviving spouse and children up to ₱3,000 each are exempt.
Determination of Net Taxable Estate
- Funeral and burial expenses, proper capital and gains of surviving spouse, proven debts, judicial expenses, and claims against insolvent persons may be deducted.
- Value of previous gifts or advances to heirs must be added to the taxable amount.
Taxation When Multiple Classes of Beneficiaries Exist
- Each beneficiary's share taxed according to their respective class or group.
Valuation of Usufruct, Use, Habitation, and Annuities
- Use life expectancy based on the American Tropical Experience Table, calculated at 8% annual interest.
Non-Taxable Transactions
- Merger of usufruct with naked ownership.
- Transfers from fiduciary to trustees.
- Subsequent transfers among heirs/legatees/donees, with additional tax if beneficiary's rate is higher.
Payment of Tax
- Must be paid before possession in fiduciary/trustee transfers.
- Due within six months after death or upon distribution during judicial proceedings.
Government's Priority in Tax Collection
- Tax has preference over real rights created after death until extinguished at 5 years for real property and 3 years for other property.
Allocation of Tax Among Beneficiaries
- Each charged proportionally based on value and tax scale of their class.
Required Tax Payment Before Distribution
- Courts will not authorize distribution without proof of tax payment.
Penalties for Non-Compliance by Executors or Administrators
- Fines up to ₱5,000, imprisonment up to 6 months, or both for distributing property without tax payment proof.
Registration Restrictions
- No registration of property transfers by inheritance or gift mortis causa without proof of tax payment.
- Violations penalized similarly to executor non-compliance.
Penalties for Concealment by Heirs or Donees
- Fines between 25% and 100% of concealed value, imprisonment up to 1 year, or both.
Restitution Rights for New Obligations
- Heirs can recover proportionate tax payments if new debts of the deceased are paid post-tax.
Appeals
- Decisions by Internal Revenue Collector on tax may be appealed under Act No. 2339.
Government Revenue
- All tax collections belong to the Insular Government.
Enforcement and Regulation
- Collector of Internal Revenue responsible for tax collection and regulation.
- Regulations require Secretary of Finance and Justice approval and have force of law.
Effective Date
- Law took effect July 1, 1916.