Introduction
One of the most frequently misunderstood issues in Philippine succession law is the tax treatment of inheritance received through the right of representation, particularly when a sibling of the decedent predeceases and his or her own children (the decedent’s nieces and nephews) step into the inheritance by representation.
The specific question that repeatedly arises in estate settlement practice is: Is the predeceased sibling considered to have “received” the inheritance for estate tax purposes, thereby making his or her own estate liable for estate tax on the represented share?
The short and unequivocal answer under Philippine law is no. The predeceased sibling is not liable for estate tax on the represented inheritance, and the represented share is not subjected to double estate taxation.
Legal Nature of Representation in Philippine Law
The right of representation is governed by Articles 970–982 of the Civil Code of the Philippines.
Key principles:
Representation is a fiction of law by virtue of which the representative is raised to the place and degree of the person represented (Art. 970).
The representative acquires the rights that the represented person would have had if he or she were living (Art. 971).
Crucially, the transmission is direct from the decedent to the representative. It is not a two-step process (decedent → predeceased heir → representative).
This direct transmission is explicitly recognized in jurisprudence and BIR rulings:
- The Supreme Court in Nepomuceno v. Court of Appeals (G.R. No. L-42930, November 13, 1986) and subsequent cases has consistently held that the representative “steps into the shoes” of the predeceased heir but receives the inheritance directly from the decedent.
- BIR Ruling No. 033-2003 (March 17, 2003) and BIR Ruling DA-192-04 explicitly state that inheritance received by representation is considered transmitted directly from the decedent to the representatives.
Estate Tax Treatment Under the TRAIN Law
Estate tax is governed by Section 84 et seq. of the National Internal Revenue Code, as amended by Republic Act No. 10963 (TRAIN Law), effective for deaths occurring on or after January 1, 2018.
Key points relevant to representation:
Estate tax is imposed on the transfer of the net estate of every decedent (Sec. 84).
The tax is a single tax on the privilege of the decedent to transmit his or her estate at death.
The rate is a flat 6% on the net estate after deductions (Sec. 84, as amended).
There is no distinction in tax rate based on the relationship of the heir to the decedent under the TRAIN Law (unlike the pre-2018 graduated rates where compulsory heirs enjoyed lower brackets).
The estate tax is paid before distribution of the estate (Sec. 91).
Because the inheritance by representation is transmitted directly from the decedent to the nieces/nephews, only one estate tax is imposed — that of the latest decedent.
The predeceased sibling never legally received the inheritance, so there is no estate tax event in his or her own estate with respect to that share.
Why There Is No Double Taxation
The fear of double taxation arises from a misunderstanding that the share “passes through” the predeceased sibling.
This is incorrect for two reasons:
Temporal impossibility – The sibling died before the decedent. The inheritance could not have vested in the predeceased sibling because the right to succeed only vests at the moment of death of the decedent (Art. 777, Civil Code).
Legal fiction of direct transmission – The law treats the representatives as receiving the share directly from the decedent. This is not a successive transmission but a substitutional one.
This principle is affirmed in:
- BIR Ruling No. 033-2003: “The inheritance received by the grandchildren by right of representation is considered as inherited directly from the decedent-grandparent, hence, only one estate tax is due thereon.”
- BIR Ruling DA-488-04 (October 25, 2004): Explicitly applied the same rule to nephews/nieces representing a predeceased sibling.
Practical Implications in Estate Tax Return Filing
In filing BIR Form No. 1801 (Estate Tax Return):
- The nieces/nephews who inherit by representation are listed as heirs.
- Their relationship to the decedent is indicated as “nephew/niece by representation.”
- The share allocated to them is included in the gross estate and subjected to the 6% estate tax once.
- No separate estate tax return is required in the estate of the predeceased sibling for this represented share.
When Representation Applies in Collateral Line (Siblings)
Representation in the collateral line is limited:
- It applies only to descendants of brothers and sisters (i.e., nephews and nieces) (Art. 972).
- It does not extend to descendants of uncles/aunts or more remote collaterals.
- It applies both in intestate and testate succession when the predeceased sibling was instituted as heir (Art. 856).
Comparison Table: Representation vs. Ordinary Succession
| Aspect | Inheritance by Representation (Nephew/Niece) | Ordinary Succession (Living Sibling) |
|---|---|---|
| Transmission path | Direct: Decedent → Nephew/Niece | Decedent → Sibling |
| Number of estate tax events | One (decedent’s estate only) | One (decedent’s estate only) |
| If sibling later dies | No second estate tax on this share | Second estate tax when sibling dies |
| Relationship for tax purposes | Collateral (but rate is now irrelevant) | Collateral |
| BIR treatment | Direct heir of decedent | Direct heir of decedent |
Conclusion
Under Philippine law, the predeceased sibling is not liable for estate tax on the inheritance received by his or her children through representation. The legal fiction of representation causes the share to pass directly from the decedent to the representatives, resulting in only one estate tax imposition — that of the decedent whose death opened the succession.
There is no legal or factual basis to impose estate tax twice on the same property merely because representation was invoked. This position has been consistently upheld by the Bureau of Internal Revenue in numerous rulings since 2003 and is fully aligned with the Civil Code provisions on representation.
Practitioners and families settling estates may therefore proceed with confidence: the represented share attracts estate tax only once, in the estate of the last decedent.