The Bureau of Internal Revenue (“BIR”) has issued Revenue Memorandum Circular (“RMC”) No. 94-2021 clarifying that a general renunciation by an heir of his share from the inheritance is not subject to donor’s tax. However, in the case of a partial renunciation of inheritance, donor’s tax shall be imposed on the value foregone as a result of the said partial waiver/renunciation.
RMC No. 94-2021 effectively amends Revenue Regulations (“RR”) No. 2-2003 and prior rulings issued by the BIR.
Under RR No. 2-2003, renunciation by the surviving spouse of his/her share in the conjugal partnership or absolute community after the dissolution of marriage in favor of the heirs of the deceased spouse or any other person/s is subject to donor’s tax, whereas general renunciation by an heir, including the surviving spouse, of his/her share in the hereditary estate left by the decedent is not subject to donor’s tax, unless specifically and categorically done in favor of identified heir/s to the exclusion or disadvantage of the other co-heirs in the hereditary estate.
The BIR also previously ruled that if there is no specific repudiation by an heir in favor of another heir, although the values of the properties to be received by each heir were not equal, the same cannot be interpreted as repudiation. Accordingly, the said unequal distribution of the properties in favor of the heirs is not subject to donor’s tax.
Under RMC No. 94-2021, a general renunciation by an heir of his share from the inheritance is not subject to donor’s tax. However, in instances when instead of all heirs receiving their respective shares in all properties of the decedent, they will agree among themselves for a specific property that each one of them will receive, the same may result in the imposition of donor’s tax. The BIR reasoned that there will definitely be an heir who will receive a share lower or higher than the value of what should have been his rightful share in all the properties of the decedent. In other words, there will be unequal distribution of the estate. Under RMC No. 94-2021, the same will be treated as a partial renunciation of inheritance since the heir is waiving his share only to identified properties but not the entire or all of the properties of the decedent, and donor’s tax will be imposed on the value foregone as a result of such waiver/renunciation.
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Head, Tax Practice