THERE were six (6) brothers (Sons A, B, C, D, E and F) who will inherit the net estate of Sps. Juan Dela Cruz.
For our example, we will stipulate that decedents Sps. Juan Dela Cruz left six (6) hectares of land.
Three (3) hectares are in what we call commercial zone as these are along the national highway. The other three (3) hectares are located in inner or residential zone (in the vernacular, "looban").
When the estate was settled, the first three (3) sons received the one (1) hectare in the commercial zone, with each hectare valued at a conservative Twenty Million (Php20,000,000) Pesos. The remaining three (3) hectares were given to the last three (3) sons, with each hectare valued at a conservative Five Million (Php5,000,000) Pesos. Take note that each of them had the same portion in terms of area (at one (1) hectare each), but received, in terms of value, disproportionately with the first three sons receiving four (4x) the last three (3) sons.
When the estate settlement papers were submitted to the BIR for payment of taxes, the BIR assessed an estate tax of Php4,500,000 (Php75,000,000 net estate x 6%). The first three (3) sons insisted that each of them pay their own taxes, so this estate tax was distributed equally to them (Php750,000 each). So a son who received Php5,000,000 (in terms of value) in inheritance and another who received Php20,000,000 will have to pay the same share of estate tax (at Php750,000 each). A son receiving less will be paying 15% of his inheritance in estate tax; a son receiving more will only be paying 3.75% of his inheritance in estate tax.
But the BIR not only assessed estate tax but also Donor's Tax, because in their view, by assigning particular slice of land, there was in fact a transfer without consideration (a waiver of a co-owner, as heirs are deemed under the law, in favor a co-owner). So, in BIR's view, a son receiving Php5,000,000 is technically waiving his rights in the amount of Php3,333,333.33 (Php20,000,000 divided by 6) to the inheritance worth Php20,000,000 of another son, so the son who received less was assessed further of Donor's Tax at the rate of 6% multiplied by the waived amount, or Php199,999.99 in taxes. On the other hand, the son who received Php20,000,000 is deemed by the BIR to waive his share in the Php5,000,000 inheritance of the former, and was assessed by the BIR of a Donor's Tax due of Php49,999. Repeat the same process for each son and their inheritance.
Son E, who received only Php5,000,000, will be assessed a Donor's Tax as broken down as:
Php199,999.99
Php199,999.99
Php199,999.99
Php49,999.99
Php49,999.99
TOTAL OF: Php699,995
In sum, Son E paid Php750,000 in estate tax and Php699,995 in Donor's Tax or Php1,499,995 in taxes or 28.99% of his inheritance. He is left with Php3,500,005.
Let's look at the Donor's Tax of Son A:
Php199,999.99
Php199,999.99
Php49,999.99
Php49,999.99
Php49,999.99
Son A had to pay Php549,995 in Donor's Tax. Combined with his share of the estate tax, that's Php1,299,995. That's 6.4% of his inheritance. He is left with Php18,770,005 in terms of value.
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So what we have here is a person receiving more paying less in terms of real amount and in terms of percentage of the amount received, with those receiving less paying more in terms of real amount and in terms of percentage of the amount received.
It would have been more equal if the net estate is divided in terms of value with each son receiving Php12,500,000 in terms of value.
The funny thing is Sons A, B, and C thinks this is "just" and derogate Son D, E, and F.
"People derogate victims in this way to avoid the cognitive dissonance that comes from trying to understand how individuals can suffer injustice in a just world." (Harvard Business Review)
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