BIR Ruling [DA-047-00]

January 20, 2000 BIR RULING [DA-047-00] Gastardo Torres Calumpong Bolos & Bagabaldo Law Offices 2E Edificio Enriqueta 422 N.S. Amoranto St. cor D. Tuazon Ave. Quezon City Attention: Atty . Froilan A . Bagabaldo Managing Partner Gentlemen : This refers to your letter dated June 7, 1999 requesting a ruling on whether or not a general professional partnership engaged in the practice of law, is subject to income tax, value-added tax and expanded withholding tax. In reply, please be informed that pursuant to Section 26 of the Tax Code of 1997, general professional partnerships are not subject to income tax imposed under Chapter III, Title II of the Tax Code of 1997. However, persons engaging in business as partners in a general professional partnership shall be liable to income tax in their separate and individual capacities. Each partner shall report as gross income his distributive share, actually or constructively received, in the net income of the partnership. For purposes of computing the distributive share of the partners, the net income of the partnership shall be computed in the same manner as a corporation. Moreover, pursuant to Revenue Regulations No. 19-99 dated December 27, 1999, implementing Section 5 of R. A. No. 8424, otherwise known as the Tax Reform Act of 1997, sale of services by persons engaged in the practice of profession or calling and professional services rendered by general professional partnerships , services rendered by actors, actresses, talents, singers and emcees, radio and television broadcasters and choreographers, musical, radio, movie, television and stage directors and professional athletes, are now subject to VAT beginning January 1, 2000. (Emphasis supplied) Finally, the tax exempt status of general professional partnerships from the imposition of withholding tax under Revenue Regulations No. 2-98 is hereby confirmed. It is noteworthy to mention, however, that income payments made periodically or at the end of the taxable year by a general professional partnership to the partners, such as drawings, advances, sharings, allowances, stipends, etc. are subject to the 10% creditable withholding tax pursuant to Section 2.57.2 (H) of Revenue Regulations No. 2-98. (BIR Ruling No. DA-091-99 dated February 15, 1999) This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation it shall be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner Legal and Enforcement Group