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GROSS ESTATE AND NET
ESTATE


GROSS ESTATE
Sec. 104, NIRC. DEFINITIONS. For purposes of
this Title, the terms “gross estate” and “gifts”
include real and personal property, whether
tangible or intangible, or mixed, wherever
situated x x x

The gross estate of a decedent who is a citizen
or resident alien includes the following,
wherever these may be situated:
(1) Real Property
(2) Personal Property

(a) Intangible
(b) Tangible

(3) Mixed

For a non-resident decedent who is not a
Filipino citizen at the time of his death, his real
and personal property situated outside the
Philippines shall not be included as part of his
gross estate. Thus, only the following are
included in the gross estate:
(1) Real property in the Philippines
(2) Tangible personal property in the
Philippines
(3) Intangible personal property in the
Philippines, unless excluded under the
reciprocity rule

RECIPROCITY RULE
There is reciprocity if the foreign country of
which the decedent was a citizen and resident
at the time of his death:
(a) Did not impose a transfer tax of any

character, in respect of intangible personal
property of citizens of the Philippines not
residing in that foreign country; OR

(b) Allowed a similar exemption from transfer
tax in respect of intangible personal property
owned by citizens of the Philippines not
residing in that country


Note: In sum, both states must exempt
nonresidents (citizens of the other state) from
transfer taxes in respect of intangible personal
property.


CIR v Fisher (1961): For the reciprocity rule to
apply, there must be TOTAL reciprocity. [For
instance,] the reciprocity rule will not apply if
California imposes only the inheritance tax
while the Philippines imposes both estate and
inheritance taxes. Reciprocity has to be total.

Collector v. Campos-Rueda (1971); Collector v
Lara (1958): Reciprocity in exemption does not
require the “foreign country” to possess
international personality in the traditional sense
(i.e., compliance with the requisites of
statehood). Thus, Tangier, Morocco and
California, a state in the American Union were
held to be foreign countries within the meaning
of Section 104.

Collector v Lara (1958): When the owner of
personal property, during his lifetime, extended
his activities with respect to his interests so as to
avail himself of the protection and benefits of the
laws of the Philippines, so as to bring his person
or property within the reach of the Philippines,
the reason for a single place of taxation no longer
obtains. His property in the Philippines enjoys
the protection of the government so that the
right to collect the estate tax cannot be
questioned.

INTANGIBLE PROPERTIES WHICH ARE
CONSIDERED SITUATED IN THE
PHILIPPINES
(1) Franchise which must be exercised in the

Philippines
(2) Shares, obligations or bonds issued by any

corporation or sociedad anonima organized
or constituted in the Philippines in
accordance with its laws

(3) Shares, obligations or bonds issued by any
foreign corporation 85% of the business of
which is located in the Philippines

(4) Shares, obligations or bonds issued by any
foreign corporation if such shares,
obligations or bonds have acquired a
business situs in the Philippines

(5) Shares or rights in any partnership, business
or industry established in the Philippines
[Sec. 104, NIRC]

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SUMMARY OF RULES UNDER SEC. 104,
NIRC

Citizen or Resident Alien Non-resident Alien

Real property in the Philippines

Included Included

Real property outside the Philippines

Included Not included

Tangible personal property in the Philippines

Included Included

Tangible personal property outside the Philippines

Included Not included

Intangible personal property in the Philippines

Included Included, unless
exempted on the basis
of the principle of
reciprocity

Intangible personal property outside the
Philippines

Included Included



NET ESTATE
Value of the estate after all deductions have
been made against the gross estate; subject to
the graduated tax rates. [Sec. 6, RR 2-2003]

Net estate is arrived at using the following
formula:










The net estate is the basis for determining the
tax rate.




DETERMINATION OF GROSS
ESTATE AND NET ESTATE

GROSS ESTATE is determined by the value of
the properties owned by the decedent at the
time of his death.


Sec. 85, NIRC. GROSS ESTATE. The value of the
gross estate of the decedent shall be
determined by including the value at the time of
his death of all property, real or personal,
tangible or intangible, wherever situated:
Provided, however, that in the case of a
nonresident decedent who at the time of his
death was not a citizen of the Philippines, only
that part of the entire gross estate which is
situated in the Philippines shall be included in
his taxable estate.

General rule: Gross estate is determined by
including the value of all of the decedent’s
properties, wherever situated, at the time of his
death.

Exception: The gross estate shall be determined
by including only that part of the estate of the
decedent that is situated in the Philippines if the
decedent is a nonresident who at the time of his
death was not a Filipino citizen.


DETERMINATION OF THE VALUE OF
THE ESTATE [Sec. 5, RR 2-2003]
For properties, the general rule is that the estate
shall be appraised at its fair market value as of
the time of death.

For real property, the FMV shall be the fair
market value as determined by the
Commissioner or the FMV as shown in the
schedule of values fixed by the provincial and
city assessors, whichever is HIGHER.


For personal property, FMV at the time of
death


Manila Railroad Co. v Velasquez (1915): The
market value of property is the price which it will
bring when it is offered for sale by one who
desire, but is not obliged to sell it, and is bought
by one who is under no necessity of having it.

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Petition for review on certiorari to the Supreme
Court
A party adversely affected by a decision or ruling
of the CTA en banc may file with the Supreme
Court a verified petition for review on certiorari
pursuant to Rule 45 of the 1997 Rules of Civil
Procedure. (Sec. 19, R.A. No. 1125 as amended)

TAXPAYER’S SUIT IMPUGNING THE
VALIDITY OF TAX MEASURES OR ACTS OF
TAXING AUTHORITIES

Taxpayer’s suit, defined
A "taxpayer's suit" refers to a case where the act
complained of directly involves the illegal
disbursement of public funds derived from
taxation. (Kilosbayan v. Guingona, Jr. (1994))

Distinguished from citizen’s suit
The plaintiff in a taxpayer's suit is in a different
category from the plaintiff in a citizen's suit. In
the former, the plaintiff is affected by the
expenditure of public funds, while in the latter,
he is but the mere instrument of the public
concern. [De Castro v. Judicial and Bar Council
(2010)]

Requisites for challenging the
constitutionality of a tax measure or act of
taxing authority

(1) Concept of locus standi as applied in taxation

(1) CONCEPT OF LOCUS STANDI: The
doctrine of locus standi is the right of
appearance in a court of justice. The
doctrine requires a litigant to have a
material interest in the outcome of a case.
In private suits, locus standi requires a
litigant to be a "real party in interest,"
which is defined as "the party who stands
to be benefited or injured by the judgment
in the suit or the party entitled to the
avails of the suit."


In public suits, this Court recognizes the
difficulty of applying the doctrine
especially when plaintiff asserts a public
right on behalf of the general public
because of conflicting public policy issues.
On one end, there is the right of the
ordinary citizen to petition the courts to be
freed from unlawful government intrusion

and illegal official action. At the other
end, there is the public policy precluding
excessive judicial interference in official
acts, which may unnecessarily hinder the
delivery of basic public services.


The Court has adopted the "direct injury
test" to determine locus standi in public
suits. In People v. Vera, it was held that a
person who impugns the validity of a
statute must have "a personal and
substantial interest in the case such that
he has sustained, or will sustain direct
injury as a result." The "direct injury test"
in public suits is similar to the "real party
in interest" rule for private suits under
Section 2, Rule 3 of the 1997 Rules of Civil
Procedure. [Planter’s Products, Inc. v.
Fertiphil Corporation, G.R. No. 166006,
March 14, 2008]


(2) AS APPLIED TO TAXATION:

(a) It is well-stated that the validity of a
statute may be contested only by one
who will sustain a direct injury in
consequence of its enforcement. Yet,
there are many decisions nullifying, at
the instance of taxpayers, laws
providing for the disbursement of
public funds, upon the theory that "the
expenditure of public funds by an
officer of the State for the purpose of
administering an unconstitutional act
constitutes a misapplication of such
funds," which may be enjoined at the
request of a taxpayer. [Pascual v.
Secretary of Public Works (1960)]

(b) A taxpayer is allowed to sue where
there is a claim that public funds are
illegally disbursed, or that the public
money is being deflected to any
improper purpose, or that there is
wastage of public funds through the
enforcement of an invalid or
unconstitutional law. A person suing
as a taxpayer, however, must show
that the act complained of directly
involves the illegal disbursement of
public funds derived from taxation. He
must also prove that he has sufficient
interest in preventing the illegal
expenditure of money raised by

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taxation and that he will sustain a
direct injury because of the
enforcement of the questioned statute
or contract. In other words, for a
taxpayer’s suit to prosper, two
requisites must be met: (1) public funds
derived from taxation are disbursed by
a political subdivision or
instrumentality and in doing so, a law
is violated or some irregularity is
committed and (2) the petitioner is
directly affected by the alleged act.
[Mamba v. Lara, G.R. No. 165109, Dec.
14, 2009]


(2) Doctrine of transcendental importance

Recognizing that a strict application of the
"direct injury" test may hamper public
interest, this Court relaxed the requirement
in cases of "transcendental importance" or
with "far reaching implications." Being a
mere procedural technicality, it has also been
held that locus standi may be waived in the
public interest. (Ibid)


Planters Products, Inc. v. Fertiphil Corp.: Even
assuming arguendo that there is no direct
injury, We find that the liberal policy
consistently adopted by this Court on locus
standi must apply. The issues raised by
Fertiphil are of paramount public
importance. It involves not only the
constitutionality of a tax law but, more
importantly, the use of taxes for public
purpose. Former President Marcos issued
LOI No. 1465 with the intention of
rehabilitating an ailing private company. This
is clear from the text of the LOI. PPI is
expressly named in the LOI as the direct
beneficiary of the levy. Worse, the levy was
made dependent and conditional upon PPI
becoming financially viable. The LOI
provided that "the capital contribution shall
be collected until adequate capital is raised
to make PPI viable."


The constitutionality of the levy is already in
doubt on a plain reading of the statute. It is
Our constitutional duty to squarely resolve
the issue as the final arbiter of all justiciable
controversies. The doctrine of standing,
being a mere procedural technicality, should
be waived, if at all, to adequately thresh out
an important constitutional issue.


(3) Ripeness for judicial determination

“Ripeness for judicial determination” means
that litigation is inevitable or there is no
adequate relief available in any other form or
proceeding.


CJH Development Corp. v. BIR (GR No. 172457,
Dec. 24, 2008) However, CJH is not left
without recourse. The Tariff and Customs
Code (TCC) provides for the administrative
and judicial remedies available to a taxpayer
who is minded to contest an assessment,
subject of course to certain reglementary
periods. The TCC provides that a protest can
be raised provided that payment first be
made of the amount due. The decision of the
Collector can be reviewed by the
Commissioner of Customs who can approve,
modify or reverse the decision or action of the
Collector. If the party is not satisfied with the
ruling of the Commissioner, he may file the
necessary appeal to the Court of Tax
Appeals. Afterwards, the decision of the
Court of Tax Appeals can be appealed to this
Court.

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