The Philippine Estate Tax Amnesty
has been extended
by Francesco Britanico
It is common among Filipino families, when the parents pass away, for the children not to pay the inheritance tax nor complete the legal steps to transfer the family properties in the Philippines to their names. Instead, the children come to an informal agreement on who will use the family property without settling their parents’ estates in the country.
Although convenient in the short term, this arrangement becomes a problem because the estate tax is incurred upon the death of the owner. Its payment is a condition for the transfer of title to the properties. If left unpaid, the estate tax is subject to interest, surcharges, and penalties, which continue to accrue year after year.
It is in this way that grandchildren in Canada can find themselves owning Philippine properties they cannot do anything with because these are still registered in their grandparents’ names. By then, the years or decades of accumulated fines are too much for even willing heirs to pay.
The Philippine Estate Tax Amnesty is a solution to this problem. We are happy to note that the amnesty’s effectivity has recently been extended until June 14, 2023. The amnesty applies to unpaid taxes on the Philippine estates of persons who died before January 1, 2018.
The amnesty sets the rate at which Philippine estates are taxed at 6 per cent. It also forgives them of the accrued interest, surcharges, and penalties from failure to pay the inheritance tax for all these years. The amnesty is a singular chance for Filipino families to finally register inherited properties in the names of the present heirs or to sell them to buyers.
The law extending the amnesty also does away with an obstacle that kept many families from availing of it earlier.
Previously, the law provided that the Bureau of Internal Revenue (BIR) could only accept payment of the 6 per cent estate tax if the BIR was shown proof of the settlement of the estate among the heirs. This meant that the BIR had to be shown either: 1) a formal agreement among the heirs on how the estate is to be divided (an extrajudicial settlement); or 2) a Philippine court judgment settling the estate.
Doing either of these takes much work, often requiring coordination and negotiation between family members scattered around the world, to say nothing of the extensive title investigation, paperwork, and legwork that inevitably accompany the settlement of an estate. The requirement prevented many families from availing of the amnesty.
But the law extending the amnesty period has deleted this requirement. The BIR will henceforth accept payment within the amnesty period even without proof of the settlement of the estate.
This will allow the heirs to pay the 6 per cent tax even while the settlement between them is still being worked out. This way, the tax can at least be paid off in time and the estate will no longer be liable for the massive, accumulated fines after the amnesty period expires.
The inheritance tax can now be paid, unlocking the family estate to finally be transferred to the heirs or for them sell.
Of course, to complete the transfer of the titles from the decedents’ names to the living heirs or to sell the properties, the heirs will eventually need to finish the estate settlement (through extrajudicial settlement or in court). But, if they pay the estate tax before the 2023 deadline, they can work on the title transfer knowing they will no longer have the inheritance taxes and immense, accumulated fines to worry about.
How to settle the estate
To settle the estate, they must first take stock of what documents they have relating to the properties. The more complete their documents are at the outset, the easier it will be to accomplish the land transfer.
Do they have the Owner’s Copy of the land titles? Do they have the updated real property tax declarations? Is there a last will and testament? Answering these questions can require a lot of investigation for Filipino families scattered across the world.
If the documents are incomplete – and they usually are – then they must be gathered. This requires sending someone to check with the Register of Deeds and the city or municipal assessor’s offices in the Philippines, among others.
The heirs should also confer so that, if possible, they can all agree on how to apportion the estate. Their agreement can be put in writing as the extrajudicial settlement of the estate. This is a notarized document that becomes the basis for the transfer of title to the living heirs, or the sale of the property, or whatever disposition the heirs agree to.
Since it is common for heirs to be scattered around the world, getting them to all sign off on the settlement can itself be a logistical task. It may require each of the heirs to sign the document and have it notarized in turn, or they can make a special power of attorney authorizing someone else to sign it on their behalf.
If unanimous agreement is not possible, then the heirs must consider asking a Philippine court to resolve the dispute between them. A court case is not ideal because it is costly in time and treasure, but it may be necessary if an agreement cannot be reached.
Once the documents are completed, there will be rounds of transactions with Philippine government offices to put all this into effect and allow the transfer or the sale.
For these families, the task ahead is probably not simple, but it is made worth it by the estate tax amnesty.