Among all the internal revenue taxes imposed in the Philippines, estate tax is arguably one of the most neglected. It is not uncommon to see estate taxes remain unpaid for several years after the death of the decedent until the heirs see the need to transfer the inherited property. These properties then remain idle with their economic benefit unutilized.
Thus, the much-anticipated Estate Tax Amnesty program was welcomed when the President signed it on Feb. 14, 2019. This program provides a one-time opportunity to settle estate tax obligations at a reduced tax rate and with no penalties.
In a nutshell, the estate tax amnesty allows unpaid estate tax obligations to be settled at the rate of 6%, without any penalties imposed. This covers the estates of decedents who passed away on or before Dec. 31, 2017, with or without tax assessments issued by the Bureau of Internal Revenue (BIR) and that have remained unpaid as of the same date. The amnesty also covers “undeclared estates” or properties that were not included in a previously filed estate tax return and not subjected to estate tax.
The 6% amnesty tax rate is imposed on the net estate of the decedent at the time of death. This means that the estate can take advantage of the deductions that are available under the Tax Code as of the time of the decedent’s death.
AVAILING OF THE ESTATE TAX AMNESTY
The estate tax amnesty return (ETAR) shall be filed with the BIR Revenue District Office (RDO) that has jurisdiction over the place of residence of the decedent, who must be a resident of the Philippines, or of the executor/administrator in the Philippines if the decedent was a non-resident. If the estate has no executor or administrator in the Philippines, the ETAR will be filed with BIR RDO No. 39 in Quezon City. Following Revenue Memorandum Order No. 33-2019, the Certificate of Availment and the Electronic Certificate Authorizing Registration (eCAR), which authorizes the transfer of the estate properties to the heirs, shall be issued within 15 calendar days from the receipt of the validated Acceptance Payment Form and proof of payment of the Estate Amnesty Tax.
The estate tax amnesty is available for two years, starting June 15, 2019 and ending June 14, 2021. Any estate that fails to take advantage of the tax amnesty within the period given will be subject to the graduated estate tax rate that was in effect as of Dec. 31, 2017, with interests and penalties also due upon payment.
The law was good news to Filipinos in the Philippines as well as those residing overseas who are heirs to unsettled Philippine-based estates with unpaid taxes. Many Filipinos who have settled abroad with their families have expressed their preference to settle the estates and sell off Philippine-based properties.
CHALLENGES FOR NON-RESIDENT FILIPINOS
However, there are challenges for non-resident Filipinos who wish to take advantage of the tax amnesty.
One challenge is the availability of documents required by the ETAR. Under Revenue Regulations (RR) No. 6-2019, documents pertaining to the value of the properties within the estate must be attached to the ETAR to provide a basis for the tax base and the resulting estate amnesty tax payable.
If, for example, the decedent passed away decades ago, there is a good chance that the heirs no longer have documents that indicate the value of the properties as of the time of the decedent’s death. This can cause difficulty in proving the actual value of the properties, since it is certain that these properties were worth far less at the time when the decedent died than their current fair market value. Without the relevant documents, it will be difficult to determine the actual value of the decedent’s estate, and the resulting basis to compute the estate amnesty tax.
Another challenge for non-resident heirs is how to determine the actual properties that comprise their parents’ or grandparents’ estates. In some cases, the heirs had already migrated to other countries, leaving their parents behind in the Philippines. When the parents are gone, there is a chance that the survivors have no clear idea about the nature or number of properties that were left behind. As they have no resources in the Philippines to obtain information on their parents’ properties, the likely result is an ETAR that may not include all the properties that actually belonged to the decedent.
A third challenge for non-resident Filipinos is the actual filing of the ETAR and payment with the bank. Non-residents usually prefer to remit payments online or through wire transfer. However, the amnesty regulations require the physical filing of the ETAR and payment through BIR authorized-agent banks. To avail of the amnesty would require that the non-resident return to the Philippines or to authorize a representative for this purpose.
POTENTIAL COURSES OF ACTION
With the way that the regulations for estate tax amnesty are currently worded, non-resident Filipinos have the option to authorize representatives in the Philippines to file and process the applications on their behalf, without having to come to the Philippines themselves. Where a proper authorization is in order, these representatives can assist in determining the properties covered by the estate, preparing and submitting the ETAR to the BIR, making the actual payment, and claiming the eCAR to be issued to the estate.
In determining the properties that may be covered by the estate, the heirs or their representatives can try to confirm with the relevant government agencies any registered properties that the decedent may have. However, there may also be hurdles on this point as more and more government agencies begin to implement rules that limit information disclosure.
Given these challenges for non-resident Filipinos, there may be a need to first evaluate how the authorities can help them maximize the benefits of the amnesty. For example, it may be useful to determine whether it is feasible to authorize Philippine embassies or consulates to accept ETAR filings and amnesty tax payments. Another potential option would be to develop online platforms to enable these individuals to file the ETAR online and settle through bank-to-bank payments. These potential options will certainly help ease the compliance of non-resident Filipinos who may be keen on settling outstanding estate tax obligations.
The intent of the estate tax amnesty is certainly laudable as it seeks to increase the revenue of the government, while helping unlock idle properties and opening these up for transfers upon the payment of the estate tax obligation. These objectives can better be realized if additional measures can be developed to help Filipinos, wherever they may be in the world, conveniently and efficiently take part in the estate amnesty program within the given period of time.
This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinion expressed above are those of the author and do not necessarily represent the views of SGV & Co.
Betheena Dizon is a Tax Senior Manager of SGV & Co.