Donors Tax and Remedies Under Lgc Compiled Digests

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<ul><li><p>8/3/2019 Donors Tax and Remedies Under Lgc Compiled Digests</p><p> 1/15</p><p> Taxation II Prof.MovidoA2010</p><p>DONORS TAX</p><p>I. Definition/Nature</p><p>LLADOC V. COMMISSIONERGR L-19201PAREDES; June 16, 1965</p><p>chris</p><p>FACTS- MB Estate Inc. of Bacolod City, donated P10000 incash to Rev. Fr. Ruiz, parish priest of NegrosOccidental, predecessor of petitioner, for constructionof new Catholic Church. Total amount was actuallyspent for purpose intended.- Donor filed donor's gift tax return. CIR issuedassessment for donee's gift tax against Catholic Parishof Victorias, Negros Occidental, of w/c petitioner was</p><p>priest. Tax amounted to P1,370 incl surcharges,interests of 1% monthly fr May 15, 1958 to June 15,1960, and compromise for late filing of return.- Petitioner lodged protest to assessment &amp; requestedw/drawal thereof. Protest &amp; MFR were denied.Petitioner appealed to CTA. In petition for review,Lladoc claimed that at the time of donation, he wasntthe parish priest in Victorias; that theres no legalentity / juridical person known as "Catholic ParishPriest of Victorias," and, therefore, he shouldnt beliable for donee's gift tax. It was also asserted thatassessment of gift tax, even against Roman CatholicChurch, wouldnt be valid, for such would be violationof Constitution.- CTA affirmed decision of Commissioner.</p><p>ISSUEWON Lladoc shld be liable for assessed donees gift tax</p><p>HELDYES- Sec 22(3), AVI of Consti exempts fr taxationcemeteries, churches and parsonages or convents,appurtenant thereto, and all lands, buildings, andimprovements used exclusively for religious purposes.</p><p>The exemption is only from payment of taxes assessedon such properties, as property taxes, as contradistinguished fr excise taxes. In the present case,what Collector assessed was donee's gift tax; the</p><p>assessment was not on the properties themselves. Itdidnt rest upon general ownership; it was an exciseupon use made of the properties, upon exercise ofprivilege of rcvng properties. Gift tax isnt w/inexempting provisions of the section.- A gift tax isnt a property tax, but an excise taximposed on transfer of property by way of giftinter vivos, the imposition of which on property usedexclusively for religious purposes, does not constitutean impairment of the Constitution.- The phrase "exempt from taxation," shouldnt beinterpreted to mean exemption from all kinds of taxes.And there being no clear, positive or express grant ofsuch privilege by law, in favor of petitioner, exemptionmust be denied.</p><p>BIR RULING NO. 029-01</p><p>II. Transfer Subject To Donors Tax</p><p>PIROVANO V. COMMISSIONER</p><p>G.R. No. L-19865REYES, J.B.L./ July 31, 1965</p><p>Del</p><p>FACTS:-De la Rama Steamship Co. insured the life of said EnricoPirovano, who was then its President and General Manageruntil the time of his death, with various Philippine andAmerican insurance companies for a total sum of 1M pesos,designating itself as the beneficiary of the policies, obtained byit.-Due to the Japanese occupation of the Philippines duringWWII, the Company was unable to pay the premiums on thepolicies issued by its Philippine insurers and these policieslapsed, while the policies issued by its American insurers werekept effective and subsisting, the New York office of theCompany having continued paying its premiums from year toyear.-During the Japanese occupation, or more particularly in thelatter part of 1944, Pirovano died.-After the liberation of the Philippines from the Japaneseforces, the Board of Directors of De la Rama Steamship Co.adopted a resolution dated July 10, 1946 granting and settingaside, out of the proceeds expected to be collected on theinsurance policies, the sum of P400k for equal division amongthe 4 minor children of Enrico, said sum of money to beconvertible into 4,000 shares of stock of the Company, at par,or 1,000 shares for each child.</p><p>-Shortly thereafter, the Company modified the resolution uponreceipt of the total sum of P643k as proceeds of the said lifeinsurance policies obtained from American insurers. Said sumplus interest was then given to the minor children of thedeceased, subject to the express condition that said amountshould be retained by the Company in the nature of a loan toit, payable to the Pirovano children after the Company shallhave first settled in full the balance of its present remainingbonded indebtedness in the sum of approximately P5M.-Mrs. Pirovano, in behalf of her children, executed a publicdocument formally accepting the donation. (The Company tooknote of this acceptance.)-However, the majority stockholders of the Company voted torevoke the resolution approving the donation in favor of thePirovano children.-As a consequence of this revocation and refusal of theCompany to pay the balance of the donation despite demandstherefor, the petitioners brought an action for the recovery ofsaid amount, plus interest and damages against De la RamaSteamship Co., in the CFI of Rizal, which case ultimatelyculminated to an appeal to this Court.-SC rendered its decision (w/c became final and executory) in</p><p>the appealed case holding that the donation was valid andremunerative in nature.- De la Rama Steamship Co. made a partial payment on theamount of the judgment and paid the balance thereof.-Commissioner assessed the amount of P60,869.67 asdonees' gift tax, inclusive of surcharges, interests and otherpenalties, against each of the petitioners-appellants, or for thetotal sum of P243,478.68; and a donor's gift tax in the totalamount of P34,371.76 was also assessed against De la RamaSteamship Co., which the latter paid.-Petitioners-appellants herein contested the Commissioner'sassessment and imposition of the donees' gift taxes anddonor's gift tax and also made a claim for refund of the donor'sgift tax so collected. Commissioner overruled petitioners'claims.</p><p>-Pirovanos went to the CTA to dispute the legality of theassessment of donees' gift taxes and donor's gift tax and toclaim for refund of the donor's gift tax already paid.-CTA ordered a refund of the donor s gift tax but found thedonees gift taxes were correctly assessed.-Pirovanos filed a MR, which the lower court denied. Hence,this appeal.</p><p>ISSUE: WON the Pirovanos should pay the donees' gift taxes(bcoz they alleged that the sum involved herein was inpayment of their fathers past services TF not a donation.)</p><p>HELD: Yes.</p><p>- 1 -</p></li><li><p>8/3/2019 Donors Tax and Remedies Under Lgc Compiled Digests</p><p> 2/15</p><p> Taxation II Prof.MovidoA2010</p><p>Ratio: Without proof of donative intent, application of thedonors tax on the difference between the fair market valueand the selling price of the shares sold has no basis.</p><p>-There is nothing on record to show that when the late EnricoPirovano rendered services as President and GeneralManager of the De la Rama Steamship Co. he was not fullycompensated for such services. The fact that his servicescontributed in a large measure to the success of the companydid not give rise to a recoverable debt, and the conveyancesmade by the company to his heirs remain a gift or donation.The true consideration for the donation was, therefore, thecompany's gratitude for his services, and not the servicesthemselves.-CTA regarded the conveyance as a simple donation; whetherremuneratory or simple, the conveyance remained a gift,taxable under IRC.-Pirovano's successful activities as officer of the De la RamaSteamship Co. cannot be deemed such consideration for thegift to his heirs, since the services were rendered long beforethe Company ceded the value of the life policies to said heirs;cession and services were not the result of one bargain or of a</p><p>mutual exchange of promises.-Anglo-American law treats a subsequent promise to pay forpast services (like one to pay for improvements already madewithout prior request from the promisor) to be a nudum pactumi.e., one that is unenforceable in view of the common law rulethat consideration must consist in a legal benefit to thepromisee or some legal detriment to the promisor.-What is more, the actual consideration for the cession of thepolicies was the Company's gratitude to Pirovano; so thatunder section 111 of the Code there is no consideration thevalue of which can be deducted from that of the propertytransferred as a gift. Like "love and affection," gratitude has noeconomic value and is not "consideration" in the sense that theword is used in this section of the Tax Code.-It is of course perfectly possible that a donation or gift should</p><p>at the same time impose a burden or condition on the doneeinvolving some economic liability for him. A, for example, maydonate a parcel of land to B on condition that the latter assumea mortgage existing on the donated land. In this case thedonee may rightfully insist that the gift tax be computed onlyon the value of the land less the value of the mortgage. This, infact, is contemplated by Article 619 of the Civil Code of 1889(Art. 726 of the Tax Code) when it provides that there is also adonation "when the gift imposes upon the donee a burdenwhich is less than the value of the thing given." Section 111 ofthe Tax Code has in view situations of this kind, since it alsoprescribes that "the amount by which the value of the propertyexceeded the value of the consideration" shall be deemed agift for the purpose of the tax. .</p><p>Dispositive: CTAs decision is affirmed.</p><p>ESTATE OF FIDEL REYES V. CIR</p><p>III.Computation of Taxes</p><p>e. Contributions toPolitical Parties</p><p>ABELLO, et al v. CIRGR 120721</p><p>Azcuna, J.; Feb. 23, 2005ina</p><p>FACTSPetitioners, partners in the ACCRA law firm, eachcontributed some P800k to the campaign funds ofAngara for his senatorial bid in 1987. The collectorassessed each of them donors tax of about P200k. TheCIR denied their claim for exemption. The CTA grantedit; while the CA sided with the CIR.</p><p>ISSUEWON the campaign contributions in question aresubject to donors tax*</p><p>RULINGYES</p><p>1) The National Internal Revenue Code, as amended,provides:Sec. 91. Imposition of Tax. (a) There shall be levied,assessed, collected, and paid upon the transfer by any</p><p>person, resident, or non-resident, of the property bygift, a tax, computed as provided in Section 92. (b) Thetax shall apply whether the transfer is in trust orotherwise, whether the gift is direct or indirect, andwhether the property is real or personal, tangible orintangible.- The NIRC doesnt define transfer of property by gift;but the civil code, which applies suppletorily, definesdonation, in Article 725, as:</p><p>. . . an act of liberality whereby a persondisposes gratuitously of a thing or right infavor of another, who accepts it.</p><p>- Donation has the following elements: (a) thereduction of the patrimony of the donor; (b) theincrease in the patrimony of the donee; and, (c) theintent to do an act of liberality or animus donandi.2) Donative intent is a creature of the mind. It canonly be perceived thru the material and tangible actswhich manifest its presence. It is presumed presentwhen one gives a part of ones patrimony to anotherwithout consideration. It is not negated when theperson donating has other intentions, motives orpurposes which do not contradict donative intent. ThisCourt is not convinced that since the purpose of thecontribution was to help elect a candidate, there wasno donative intent. Petitioners contribution of moneywithout any material consideration evinces animusdonandi. The fact that their purpose for donating wasto aid in the election of the donee does not negate thepresence of donative intent.3) The purpose for which the sums of money weregiven, which was to fund the campaign of SenatorAngara in his bid for a senatorial seat, cannot beconsidered as a material consideration so as to negatea donation. The fact that petitioners will somehow inthe future benefit from the election of the candidate towhom they contribute, in no way amounts to avaluable material consideration so as to removepolitical contributions from the purview of a donation.Senator Angara was under no obligation to benefit thepetitioners. The proper performance of his duties as alegislator is his obligation as an elected public servantof the Filipino people and not a consideration for thepolitical contributions he received. In fact, as a publicservant, he may even be called to enact laws that are</p><p>contrary to the interests of his benefactors, for thebenefit of the greater good.4) The petitioners argue that for half a century, the BIRnever attempted to subject campaign contributions todonors tax. This may be so, but the BIR is notprecluded from making a new interpretation of the law,especially when the old interpretation was flawed.5) The law is clear and unambiguous; therefore, thereis no room for construction. (Petitioners argue that thelaw should be construed liberally in favor oftaxpayers.)</p><p>* Congress approved Republic Act No. 7166 onNovember 25, 1991, providing in Section 13 thereof</p><p>- 2 -</p></li><li><p>8/3/2019 Donors Tax and Remedies Under Lgc Compiled Digests</p><p> 3/15</p><p> Taxation II Prof.MovidoA2010</p><p>that political/electoral contributions, duly reported tothe Commission on Elections, are not subject to thepayment of any gift tax. Unfortunately, this doesntretroact to the campaign contributions in question inthis case.</p><p>V. Exemptions</p><p>TANG HO V BOARD OF TAX APPEALS97 PHIL 890</p><p>REYES, J.B.L.; November 19, 1955Apple</p><p>FACTS-Li Seng Giap (who died during the pendency of thisappeal) and his wife Tang Ho and their thirteenchildren appear to be stockholders of two close familycorporations named Li Seng Giap &amp; Sons, Inc. and LiSeng Giap &amp; Co.-Examiners of the Bureau of Internal Revenue made an</p><p>examination of the books of the two corporations andfound that each of Li Seng Giap's 13 children had atotal investment therein of approximately P63,195.00,in shares issued to them by their father in the years1940, 1942, 1948, 1949, and 1950-The Collector of Internal Revenue regarded thesetransfers as undeclared gifts made in the respectiveyears, and assessed against Li Seng Giap and hischildren donor's and donee's taxes in the total amountof P76,995.31, including penalties, surcharges,interests, and compromise fee due to the delayedpayment of the taxes.- The petitioners paid P53,434.50 representing theamount of the basic taxes, and put up a surety bond toguarantee payment of the balance demanded.</p><p>-On June 25, 1951, they requested the Collector ofInternal Revenue for a revision of their taxassessments, and submitted donor's and donee's gifttax returns-Appellants admit that the gifts were not reported; butcontend that as the cash donated came from theconjugal funds, they constituted individual donationsby each of the spouses Li Seng Giap and Tang Ho ofone half of the amount received by the donees in eachinstance-They also claimed the benefit of gift tax exemptions(under section 110 and 112 of the Internal RevenueCode) at the rate of P2000 a year for each donation,</p><p>plus P10,000 for each gift propter nuptias made byeither parent-The Collector refused to revise his originalassessments; and the petitioners appealed to the thenBoard of Tax Appeals-The Board of Tax Appeals upheld the decision of therespondent Collec...</p></li></ul>