Philippine economy

[ANALYSIS] What does the estate tax amnesty extension mean?

Francesco Britanico
[ANALYSIS] What does the estate tax amnesty extension mean?

Illustration by DR Castuciano

'The estate tax amnesty was a godsend for these families. The new law extending it is most welcome, but the two-year extension is not its only significant provision.'

Congress recently extended the estate tax amnesty for two more years, until June 14, 2023. The extension was granted partly because the pandemic made availing of the amnesty very difficult.

Travel restrictions, community quarantines, and closures of government offices prevented many from completing the documents needed to avail of it. The economic uncertainty also kept otherwise eager heirs from paying the lowered taxes on these estates. 

The amnesty extension benefits both the government and the heirs of qualified estates. The government stands to receive much needed revenue while the heirs will have this chance to finally transfer the titles of these properties to the living generation.

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Which estates qualify for amnesty?

The amnesty applies to unpaid taxes on the estates of persons who died before January 1, 2018. 

It fixes at 6% the rate at which these estates are taxed. It also relieves those availing of the amnesty from the accumulated interest, surcharges, and penalties because of failure to pay the inheritance tax for all these years.

This relief from accumulated interest, surcharges, and penalties is a major feature of the amnesty.

Among Filipino families, it is common for surviving children not to bother with settling their parents’ estates when they inherit. The children simply agree among themselves on how the inheritance is divided or used. They continue using the family property without paying the inheritance tax or having the titles transferred from their parents’ names to theirs.  

The generation that occupies the property may faithfully pay the annual real property taxes (amilyar), but kick the problem of actually transferring the title for the next generation to worry about. Leaving it for later creates problems because the amount due grows year after year.

This can go on for generations until you have grandchildren now faced with owning property still registered in their grandparents’ names. By then, the cost of paying the inheritance taxes, plus decades of interest and penalties, is out of the question.

The estate tax amnesty was a godsend for these families. The new law extending it is most welcome, but the two-year extension is not its only significant provision.

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Taxes can be paid even without settling the estate.

Republic Act No. 11569, the law extending the amnesty, makes another significant change to the Tax Amnesty Act.

It deletes the requirement that heirs must present proof of settlement of the estate to avail of the amnesty. Such proof no longer has to be presented to the Bureau of Internal Revenue (BIR) for it to accept payment. This makes it a lot easier for the government to be paid and for the heirs to pay the government.

The requirement had meant that the heirs needed to have either reached unanimous agreement (an extrajudicial settlement) on how they would divide the property or that they had gotten a court judgment settling the estate. 

Congress listened to experts who recommended that the requirement be deleted. These experts advised that it was a major reason for heirs not to avail of the amnesty.

They were right. It is time-consuming to settle an estate. Requiring it before allowing the tax to be paid defeats the purposes of the amnesty and instead prevents willing heirs from paying taxes.

For example, a probate case – through which a last will and testament is ruled on by a court – can drag on for years, especially if it is opposed. A court case among heirs contesting an estate with no last will and testament can also take a very long time to conclude. Insisting that the court case be finished before the BIR accepts payment of the tax will prevent payment within the amnesty period.

Even an extrajudicial settlement can be hard to reach on short notice. Unanimous agreement on how lolo’s and lola’s estates should be allotted is not easy when some heirs want one parcel of land for themselves while others want to sell everything. If they cannot agree, they cannot make an extrajudicial settlement that they can present to the BIR.

And even heirs in full agreement face practical obstacles. It is common nowadays that the heirs are not all in one country. Some may be scattered across the United States, some in Metro Manila, while others are in the provinces. 

For them to unanimously settle the estate, they first have to communicate with each other and agree in principle. Then they all have to sign off on the extrajudicial settlement or empower someone to sign on their behalf. Their signatures have to be notarized. 

The logistics for this can be challenging. If notarized abroad, they either do this at the Philippine consulate or the foreign notarization must be further authenticated in accordance with the Hague Apostille Convention.

Each of these options can be plagued with lost or incomplete documents which further protract the estate settlement process, to say nothing of the obstacles imposed by the pandemic. 

It is no wonder that presenting proof of settlement of the estate has been such a barrier to availing of the amnesty.

With the deletion of the settlement requirement, a path is opened for any of the heirs to pay the estate tax in the meantime. This allows payment of the lowered tax while the settlement is still being worked out. It also allows the government to get the revenue now. 

Congress hopes this change will also aid the country’s economic recovery. In her sponsorship speech for the law, Senator Pia Cayetano quoted the National Tax Research Center’s assessment that “the grant of estate amnesty will unlock assets still registered under unsettled estates so that these may be used for commercial or economic activities that would create investment, jobs, and taxable transactions.”

The change is not yet in force. Its implementing rules are still being drafted. They will be issued by the Secretary of Finance working with the Commissioner of Internal Revenue within 60 days of R.A. No. 11569 coming into effect, but the lawmaker’s intent is clear: to let heirs avail of the amnesty even before they complete the settlement of the estate.

Of course, the heirs will need to eventually finish the estate settlement for them to transfer the titles to property from the decedents’ names to the living generation’s. But paying the tax even before the estate settlement is completed will allow many of them to avail of the amnesty. –

Francesco C. Britanico is a family and corporate lawyer. He has taught Property Law and other subjects for the Legal Studies program of the Lyceum of the Philippines University. He is the managing lawyer and founder of FCB Law

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