The long-awaited settlement

To say that one has never gone through any conflict is a fallacy, at the very least. Slowly after going through even on experience, you realize that it can actually be a tipping point to force you to move forward. You realize that you do not want to sulk forever on that experience. You forgive, put yourself together without a trace of the turmoil, and start your life over.

Easier said than done, isn’t it? It does not erase the past and forgiveness is not something that is easy to give — but undoubtedly, possible. Looking at it as something that paves the way towards moving forward and being resilient is not the easiest thing to do as well. It requires time, effort, and persistence. One is sometimes lucky to have that rare chance to start over, to become better, and not regret the chances not taken either.

Over the past few years, the government reached out and tried to mend fences with taxpayers. And for that reason, they came up with the Tax Amnesty Act which intends not only to provide an opportunity to settle the taxpayers’ shortcomings, but also to unload the government’s excess baggage to minimize administrative costs in pursuing tax cases and clean out the dockets of the Bureau of Internal Revenue (BIR) and the courts while raising revenue.

It took some time for the law, in its current version, to be passed. On Jan. 24, 2017, the House of Representatives forwarded House Bill (HB) No. 4814 to the Senate. The bill sought to increase collection levels, promote settlement of estate taxes and free-up properties of unsettled estates.

Later, on Oct. 9, 2018, the Senate submitted Senate Bill No. 2059 to the Bicameral Conference Committee. The bill’s intent was to provide a one-time opportunity to settle estate tax obligations, to enhance the revenue collection, and to address cross-border tax evasion by granting tax amnesty to all unpaid internal revenue taxes for the taxable year 2017 and prior years. Unlike HB No. 4814, SB No. 2059 covered estate tax, other internal revenue taxes and taxes on delinquencies.

Then on Nov. 20, 2018, HB No. 8554 was approved by the House of Representatives on its third and final reading. The bill sought to give errant taxpayers the chance to comply with tax laws and to enter the system with a clean slate. Similar to SB No. 2059, the bill covered estate taxes, general taxes and taxes on delinquencies.

On Dec. 12, 2018, SB No. 2059 and HB Nos. 4814 and 8554 were reconciled through a bicameral meeting and the Senate/House bicameral version of the Tax Amnesty Bill which was then transmitted to the Office of the President.

Finally, on Feb. 14, 2019, portions of the bicameral version of the Tax Amnesty Bill were vetoed by the President before the bill, now numbered as Republic Act (RA) No. 11213, or the Tax Amnesty Act, was signed into law. The estate tax amnesty was not vetoed in its entirety, and may still be availed of.

The estate tax amnesty is granted so heirs may fully enjoy the benefits of the property that they inherited as registered owners. The estate tax amnesty shall cover the estate of decedents who died on or before Dec. 31, 2017, with or without assessments issued, whose estate taxes have remained unpaid or have accrued as of Dec. 31, 2017. The said estate tax amnesty can be availed within two years from the effectivity of the implementing rules and regulations (IRR) of RA No. 11213. The secretary of finance shall, in coordination with the commissioner on internal revenue, promulgate the IRR within 90 days from the law’s effectivity.

Those who wish to avail of the estate tax amnesty shall file a sworn estate tax amnesty return with the Revenue District Office (RDO) of the BIR having jurisdiction over the last residence of the decedent. On the other hand, for non-resident decedents, the return shall be filed with RDO No. 39, or any other RDO indicated in the IRR.

The estate amnesty tax is computed at six percent based on the decedent’s net estate or net undeclared estate at the time of death. Note that the estate tax laws prevailing at the time of death of the decedent on valuation, manner of computation, and other related matters shall apply suppletorily, at the time of the entitlement.

In cases where the deductions applicable at the time of death exceeds the gross estate, a minimum Estate Amnesty Tax amounting to P5,000 shall be paid.

The estate amnesty tax shall be paid at the time rstate tax amnesty return is filed. Afterwards, the Revenue District Officer shall issue and endorse an acceptance payment form to accept the tax amnesty payment. The proof of settlement of the estate shall likewise be attached to the estate tax amnesty return in order to verify the mode of transfer and the proper recipients.

A Certificate of Availment of the estate tax amnesty shall be issued by the BIR within 15 days from the submission of 1) The acceptance payment form and, 2) The estate tax amnesty return to the RDO after complete payment. Otherwise, duplicates of the said documents, stamped as received, can be sufficient proofs of availment.

It is also worthy to note that following the presidential veto, if the estate has properties that are still in the name of another decedent/s, there shall be filed one estate tax amnesty return for each, if the other decedents based on the total net estate at the time of death of each of the decedents.  In short, the estate amnesty tax will be computed and paid per transfer of property until the property reaches the present holder. What is more, the valuation of the estate will also be computed based on the net estate or net undeclared estate at the time of death of that particular decedent.

The availment of the estate tax amnesty will provide immunity notwithstanding failure to pay estate taxes for deaths occurring in 2017 and prior years. This will render the taxpayers immune from all appurtenant civil, criminal and administrative cases and penalties under the National Internal Revenue Code, as amended.

While it seems easy to get these immunities, those wanting it badly may think that they have to prepare only the estate tax amnesty return and at the same time pay a lower amnesty tax rate of six percent compared to the previous graduated rates with a maximum rate of 20 percent.

Bear in mind that difficulties arise on the requirement of RA No. 11213 to attach the proof of settlement of the estate, whether judicial or extrajudicial, to the said return. Practically speaking, taking for example the preparation of an extrajudicial settlement of the estate, how will the heirs be gathered to sign the extrajudicial settlement? What if some of the heirs are outside the country? Are all the titles, tax declarations, and other relevant documents readily available? How will the value of the properties at the time of death be determined?

The possibility of availing of the estate tax amnesty in some cases will require considerable coordination of many people. It may end up to be a difficult plan to organize especially for the heir who will take responsibility of preparing the documents.

The Tax Amnesty Act is food for thought. It is a mixture of compromises and an investment of the heirs’ time and even strength. In reality, the heirs might want to avail of the amnesty for the immunities that will be granted, yet they may not want to bother with the availment knowing the inconvenience. Since no one knows if there is still another chance to start over, it would be wise to think that the long-awaited settlement is worth the trouble after all. 

Lysa Mae D. Atian is a supervisor from the tax group of KPMG R.G. Manabat & Co. (KPMG RGM&Co.), the Philippine member firm of KPMG International. KPMG RGM&Co. has been recognized as a Tier 1 tax practice and Tier 1 transfer pricing practice by the International Tax Review.

This article is for general information purposes only and should not be considered as professional advice to a specific issue or entity.

The views and opinions expressed herein are those of the author and do not necessarily represent the views and opinions of KPMG International or KPMG RGM&Co. For comments or inquiries, please email [email protected] or [email protected].