Estate Tax Amnesty Requirements in the Philippines When Extrajudicial Settlement is Pending

Introduction

The settlement of a decedent's estate in the Philippines is a multifaceted process governed by civil law, tax regulations, and administrative procedures. Estate taxes, imposed on the transfer of property from the deceased to their heirs, represent a key fiscal obligation under the National Internal Revenue Code (NIRC) of 1997, as amended. To address historical non-compliance and encourage taxpayers to settle outstanding estate tax liabilities, the Philippine government introduced an estate tax amnesty program. This initiative allows eligible estates to pay a reduced tax rate without incurring penalties, surcharges, or interest.

This article provides a comprehensive overview of the estate tax amnesty requirements, with a specific focus on scenarios where an extrajudicial settlement (EJS) is pending. An EJS refers to the out-of-court agreement among heirs to divide the estate, typically applicable when the decedent left no will, no debts, and all heirs are of legal age and in agreement. When an EJS is "pending," it implies that the process is ongoing—such as heirs negotiating terms, gathering documents, or awaiting execution and registration—but not yet finalized. In such cases, availing of the amnesty can be particularly advantageous, as it facilitates tax clearance necessary for completing the settlement and transferring titles. The discussion is rooted in the Philippine legal framework, emphasizing practical implications, procedural steps, and potential challenges.

Note that while the estate tax amnesty was initially time-bound, the principles and requirements discussed here draw from the established legal structure under relevant laws. Taxpayers should consult the Bureau of Internal Revenue (BIR) for any updates or extensions applicable as of the current date.

Legal Basis

The estate tax amnesty is primarily anchored in Republic Act (RA) No. 11213, known as the Tax Amnesty Act of 2019, which covers estate taxes among other delinquencies. This was implemented through BIR Revenue Regulations (RR) No. 6-2019 and related issuances. The amnesty was later extended by RA No. 11569, amending RA 11213 to prolong the availment period until June 14, 2023. The program aims to provide a one-time opportunity for estates with unpaid taxes to regularize their status at a flat rate of 6% on the net estate value, waiving civil, criminal, or administrative liabilities related to non-payment.

Under Section 84 of the NIRC, estate tax is due on the gross estate minus allowable deductions, computed at progressive rates (up to 6% under TRAIN Law amendments via RA 10963 for deaths after January 1, 2018). However, the amnesty targets pre-2018 estates with legacy issues. The Civil Code of the Philippines (Articles 774-1105) governs estate succession, while Rule 74 of the Rules of Court outlines EJS procedures. The interplay between tax amnesty and EJS is critical, as tax payment is a prerequisite for issuing a Certificate Authorizing Registration (CAR), which is essential for registering the EJS deed and transferring property titles with the Registry of Deeds.

Eligibility for Estate Tax Amnesty

Not all estates qualify for the amnesty. The following criteria must be met:

Date of Death: The decedent must have died on or before December 31, 2017. Estates of individuals who passed away after this date are subject to regular estate tax rules under the TRAIN Law, which simplified rates but did not include amnesty provisions.
Unpaid or Deficient Taxes: The estate must have outstanding estate tax liabilities, including those with deficiencies from prior assessments, or cases where no estate tax return was filed. This includes estates with partial payments or those under audit.
No Prior Availment: The estate should not have previously availed of any tax amnesty under RA 9480 (2007 Tax Amnesty) or other similar programs for the same tax type.
Exclusion of Certain Cases: Estates involved in pending criminal cases for tax evasion, or those with final and executory tax assessments where payment has been demanded, are ineligible. Additionally, estates with withheld taxes or those under the Voluntary Assessment and Payment Program (VAPP) may be excluded.
Applicability to EJS Scenarios: Estates opting for EJS are fully eligible, provided the above conditions are satisfied. A pending EJS does not disqualify the estate; in fact, the amnesty can expedite the settlement by resolving tax hurdles.

Heirs or the estate administrator must confirm eligibility through self-assessment or consultation with the BIR. Misrepresentation can lead to denial and imposition of regular taxes plus penalties.

General Requirements for Availing Estate Tax Amnesty

Availing of the amnesty involves filing, payment, and documentation. The process is designed to be streamlined compared to regular estate tax filings.

Filing of Estate Tax Amnesty Return: Submit BIR Form No. 2118-EA (Estate Tax Amnesty Return) to the Revenue District Office (RDO) where the decedent was domiciled at the time of death or where the executor/administrator resides.
Computation and Payment of Amnesty Tax: Pay a flat 6% amnesty tax on the decedent's net estate value as of the date of death. The net estate is calculated as gross estate (all properties, real and personal, wherever situated for residents; only Philippine-situs properties for non-residents) minus allowable deductions (e.g., funeral expenses, judicial expenses, claims against the estate, standard deduction of PHP 5 million under pre-TRAIN rules).
- Payment must be made simultaneously with filing, via authorized agent banks, BIR collection officers, or electronic means (e.g., eFPS for large taxpayers).
- No installment payments are allowed; full payment is required.
Submission of Sworn Declaration: Include a Sworn Declaration of the Estate's Composition, detailing all assets and liabilities.
Waiver of Confidentiality: The filer must execute a waiver allowing the BIR to disclose information for verification purposes.
Deadline Compliance: Originally set to expire in 2021, extended to 2023; any further extensions would be announced via new legislation or BIR issuances.

Upon compliance, the BIR issues an Acceptance Payment Form (APF) and Electronic Certificate Authorizing Registration (eCAR), confirming amnesty availment and authorizing property transfers.

Special Considerations When Extrajudicial Settlement is Pending

A pending EJS introduces unique dynamics, as the settlement process relies on heir consensus and tax clearance. Here's how the amnesty intersects:

Timing and Sequencing: A pending EJS means the Deed of Extrajudicial Settlement (DEJS) has not been executed, notarized, published (in a newspaper for three weeks if real property is involved), or registered. However, amnesty availment does not require a finalized EJS. Heirs can proceed with amnesty filing first to obtain the eCAR, which is then attached to the DEJS for registration. This is advantageous, as delaying tax payment could accrue penalties, complicating the settlement.
Who Can File?: In the absence of a court-appointed administrator (common in EJS cases), any heir, the executor (if a will exists but settlement is extrajudicial), or a duly authorized representative can file the amnesty return. All heirs must ideally consent via a joint agreement or special power of attorney to avoid disputes. If disagreements exist (e.g., over asset valuation), the amnesty can still be pursued by a majority, but this may lead to internal conflicts resolvable via mediation or court intervention.
Impact on Asset Valuation and Division: A pending EJS often involves ongoing inventory and appraisal. For amnesty purposes, heirs must agree on the fair market value (FMV) of assets as of death (using BIR zonal values for real property or appraisals for others). Discrepancies can delay filing, but provisional values can be used, subject to BIR verification. Once amnesty is availed, the agreed division in the DEJS must align with the declared net estate to prevent future audits.
Handling of Debts and Claims: If the estate has pending claims or debts (which could invalidate pure EJS and require judicial settlement), amnesty filing must account for these as deductions. Pending status may necessitate affidavits from creditors or provisional settlements.
Risks and Challenges:
- Disputes Among Heirs: A pending EJS signals potential disagreements; amnesty payment from common funds could be contested.
- BIR Scrutiny: The BIR may require additional proofs if the EJS is incomplete, such as preliminary inventories.
- Tax Implications Post-Amnesty: If the EJS reveals undeclared assets later, the estate could face regular taxes on those, minus amnesty benefits.
- Non-Resident Decedents: For foreigners or non-residents, only Philippine assets are taxed, but pending EJS may complicate foreign heir coordination.

In essence, a pending EJS should not deter amnesty availment; it can actually catalyze completion by providing tax clearance.

Step-by-Step Process

Assess Eligibility: Review death date, tax status, and EJS progress.
Gather and Value Assets: Compile inventory; appraise properties.
Compute Net Estate and Amnesty Tax: Deduct allowances from gross estate; apply 6% rate.
Prepare Documents: Fill BIR Form 2118-EA; draft sworn declaration.
File and Pay: Submit to RDO; pay tax.
Obtain Confirmations: Receive APF and eCAR from BIR.
Finalize EJS: Execute DEJS, publish if needed, attach eCAR, and register with Registry of Deeds/Bureau of Lands.
Transfer Titles: Use eCAR to update ownership.

The process typically takes 1-3 months, depending on BIR workload and document completeness.

Required Documents

Death certificate.
TIN of the decedent and estate (if assigned).
Proof of heirship (birth/marriage certificates, affidavit of self-adjudication if sole heir).
Inventory and appraisal reports.
Titles/deeds for real properties; certificates for personal assets (e.g., stocks, vehicles).
Proof of deductions (e.g., medical bills, claims).
Sworn declaration and waiver.
For pending EJS: Draft DEJS or affidavits of intent; SPAs if not all heirs are filing.

Additional documents may be requested by the BIR, such as bank statements or court orders if disputes arise.

Computation of Amnesty Tax

The amnesty tax is straightforward: 6% of net estate.

Example:

Gross Estate: PHP 10,000,000 (real property PHP 7M, cash PHP 3M).
Deductions: PHP 2,000,000 (funeral PHP 200K, claims PHP 800K, standard PHP 1M under old rules).
Net Estate: PHP 8,000,000.
Amnesty Tax: PHP 480,000.

For pending EJS, ensure computations reflect consensus to avoid revisions.

Benefits and Implications

Financial Relief: Waives penalties (up to 25% surcharge, 12-20% interest p.a.), potentially saving millions.
Legal Closure: Enables swift EJS completion and property transfers, preventing inheritance delays.
No Criminal Liability: Protects heirs from prosecution.
Economic Impact: Facilitates asset liquidity for heirs.
Limitations: Does not cover donor's tax or other unrelated taxes; non-extendable beyond legal deadlines.

Failure to avail when eligible could result in full tax plus penalties upon BIR discovery.

Conclusion

The estate tax amnesty serves as a vital tool for resolving legacy tax issues in the Philippines, particularly for estates navigating a pending extrajudicial settlement. By meeting the outlined requirements—eligibility confirmation, accurate filing, and timely payment—heirs can achieve compliance, secure tax clearance, and finalize inheritance distribution efficiently. Given the interplay between tax obligations and civil succession rules, professional advice from lawyers, accountants, or BIR-accredited agents is recommended to navigate complexities. Ultimately, proactive amnesty availment not only fulfills legal duties but also preserves family harmony and economic stability in the face of loss.