Introduction

In the Philippine legal framework, donor’s tax is a form of excise tax imposed on the privilege of transferring property by way of gift during the donor’s lifetime. Governed primarily by the National Internal Revenue Code (NIRC) of 1997, as amended by Republic Act (RA) No. 10963 (Tax Reform for Acceleration and Inclusion or TRAIN Law) and RA No. 11534 (Corporate Recovery and Tax Incentives for Enterprises or CREATE Law), this tax applies to donations of real, personal, or intangible property. When such donations are made to children—whether legitimate, illegitimate, adopted, or stepchildren—the transaction is subject to specific tax rates and potential exemptions. This article comprehensively explores the donor’s tax regime in this context, including applicable rates, computation methods, valuation rules, exemptions, filing requirements, and related legal considerations.

Legal Basis and Scope

The donor’s tax is outlined in Sections 98 to 104 of the NIRC. It is levied on the donor, not the donee, and covers gratuitous transfers of property where the consideration is either absent or inadequate. For donations to children, the tax applies regardless of the relationship, but certain provisions recognize the familial bond in exemptions. The tax is territorial, meaning it covers donations by resident donors worldwide and by non-residents only on Philippine-situs property.

Key principles include:

Adequacy of Consideration: If the transfer is for less than fair market value (FMV), the excess is treated as a donation.
Irrevocability: The donation must be complete and irrevocable to trigger the tax.
Calendar Year Basis: Taxes are computed on the aggregate net gifts made within a calendar year.

Tax Rates

Prior to the TRAIN Law effective January 1, 2018, donor’s tax followed a progressive schedule ranging from 2% to 15% for relatives (including children) and up to 30% for strangers, with exemptions varying by relationship. However, the TRAIN Law simplified and unified the rates, eliminating distinctions based on the donor-donee relationship.

Under the current regime (Section 99, NIRC, as amended):

A flat rate of 6% is imposed on the total net gifts exceeding PHP 250,000 made during the calendar year.
Gifts totaling PHP 250,000 or less in a calendar year are exempt from donor’s tax.

This rate applies uniformly to all donees, including children. For example:

If a parent donates property worth PHP 300,000 to a child, the taxable amount is PHP 50,000 (after the PHP 250,000 exemption), resulting in a tax of PHP 3,000 (6% of PHP 50,000).
Multiple donations in the same year are aggregated. If a parent donates PHP 200,000 in January and PHP 150,000 in July to the same or different children, the total net gifts are PHP 350,000, with tax on PHP 100,000 amounting to PHP 6,000.

The rate remains 6% post-CREATE Law amendments, which focused more on corporate taxes but retained the donor’s tax structure.

Computation of Net Gifts

Net gifts are calculated as the FMV of the property donated minus allowable deductions and exemptions.

Valuation of Property

Real Property: Valued at the higher of zonal value (per Bureau of Internal Revenue or BIR) or assessed value (per local government unit). If not covered by zonal values, use FMV.
Personal Property: Based on FMV at the time of donation.
Shares of Stock: For listed shares, the arithmetic mean between the highest and lowest quotation on the valuation date or nearest trading date. For unlisted shares, book value or adjusted net asset value.
Intangible Property: Such as intellectual property, valued based on FMV.

Deductions from Gross Gifts

Deductions reduce the taxable base:

Encumbrances: If the donee assumes a mortgage or debt on the property, this amount is deducted if properly documented.
Diminution: Any agreed reduction in value due to conditions imposed by the donor.

For donations to children, no special deductions apply beyond these general rules.

Exemptions Specific to Donations to Children

While the PHP 250,000 annual exemption applies to all gifts, additional exemptions are available for familial donations, particularly to children.

Dowry Exemption (Section 101(A)(3), NIRC)

Donations made by parents to their legitimate, recognized natural, or adopted children on account of marriage are exempt up to PHP 10,000 per child.
Conditions:
- The donation must be made before the marriage or within one year thereafter.
- It must be exclusively for the child's use in connection with the marriage (e.g., wedding expenses, dowry property).
- Proof of marriage and the purpose must be submitted to the BIR.
This is per child, per marriage event. For instance, if a parent donates PHP 15,000 to a child for their wedding, only PHP 5,000 is taxable (after the PHP 10,000 exemption), subject to the overall annual exemption.

Other Relevant Exemptions

Gifts to Government or Accredited Entities: Donations to the government, educational institutions, or non-profit organizations are exempt (Section 101(A), NIRC), but this rarely applies directly to children unless the child is an intermediary.
Political Contributions: Certified contributions to political parties or candidates are exempt, irrelevant here.
De Minimis Gifts: Small-value gifts may fall under the PHP 250,000 threshold.
Exemptions for Non-Residents: Non-resident aliens enjoy similar exemptions but only for Philippine-situs intangible property under reciprocity rules.

No blanket exemption exists for all parent-to-child donations; the tax aims to prevent circumvention of estate taxes through lifetime gifts.

Filing and Payment Requirements

Donor’s Tax Return (BIR Form 1800): Must be filed within 30 days after the donation date. For multiple donations in a year, amended returns may be needed to reflect aggregates.
Payment: Due at the time of filing, payable to the BIR or authorized banks.
Documentation: Includes deed of donation, proof of FMV, marriage certificate (for dowry exemption), and affidavits.
Penalties: Late filing incurs 25% surcharge, interest, and possible compromise penalties. Willful non-payment can lead to criminal liability under Section 255, NIRC.

For donations to children, the donor (parent) handles compliance. If the donor dies before filing, the executor or heirs may be liable.

Special Considerations

Revocable Donations

If the donation is revocable or conditional (e.g., donor retains control), it may not be taxed as a donation but could be treated as part of the estate upon death.

Anti-Abuse Provisions

Splitting Gifts: Attempts to split large donations across years or family members to avail multiple exemptions are scrutinized; substance over form applies.
Related Transactions: If a donation to a child is followed by a sale back to the parent at undervaluation, it may be reclassified.

Judicial Interpretations

Philippine courts, in cases like Commissioner of Internal Revenue v. Estate of Benigno Toda Jr. (G.R. No. 147188, 2004), emphasize that donor’s tax prevents tax avoidance via inter vivos transfers. For familial donations, rulings uphold the dowry exemption strictly, requiring clear marital linkage.

International Aspects

For overseas Filipinos or properties abroad, tax treaties may provide relief, but donations to children abroad by residents are fully taxable.

Conclusion

The Philippine donor’s tax on property donated to children balances revenue generation with familial support through a simplified 6% rate and targeted exemptions like the PHP 10,000 dowry provision. Donors must ensure proper valuation, documentation, and timely compliance to avoid penalties. This regime integrates with estate planning, encouraging strategic gifting while upholding tax equity.