BIR Ruling [DA-235-03]

July 23, 2003 BIR RULING [DA-235-03] 26, 27; DA-222-01 Laya Mananghaya & Co. 22/F Philamlife Tower 8767 Paseo de Roxas Makati City Attention: Atty. Francisco G. Tagao Principal, Tax & Corporate Services and Atty. Moises R. Villanueva Director, Tax & Corporate Services Gentlemen : This refers to your letter dated June 19, 2003 requesting for confirmation of your opinion that income payments which Laya Mananghaya & Co. receives in consideration for the professional services rendered to its client, is exempt from income tax under Section 27 in relation to Sections 22(B) and 26 of the Tax Code of 1997 and consequently from withholding tax prescribed in Revenue Regulations No. 2-98, as amended by Revenue Regulations No. 6-2001. It is represented that Laya Mananghaya & Co. (formerly J.C. Laya & Co., Ltd. then Laya Manabat Salgado & Co.) is a partnership composed of certified public accountants and established principally for the practice of public accounting and such other activities as are incident and related thereto; that it is registered with the Securities and Exchange Commission (SEC) with SEC Registration No. P-44456 classified as a professional partnership; that for the past years, its clients have questioned and called its attention on whether or not they should withhold taxes on the professional fees that they pay to Laya Mananghaya & Co.; and that some have even intimated that they will withhold taxes unless it is able to show proof of its exemption. In reply thereto, 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 the practice of their profession 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. EScaIT Moreover, general professional partnerships are exempt from the imposition of withholding tax under Revenue Regulations No. 2-98, as amended by Revenue Regulations No. 6-2001. However, it is worth mentioning 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 and the like, are subject to the 10% creditable withholding tax pursuant to Section 2.57.2 (H) of Revenue Regulations No. 2-98; as amended. (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 will be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group