BIR Ruling [DA-260-98]

June 22, 1998 BIR RULING [DA-260-98] Marcos De Guzman Architecture Network 155 B. Gonzalo Street cor. Katipunan Road Loyola Hts., Quezon City Attention: Mr . Marcos R . De Guzman, Jr . Managing Partner Gentlemen : This refers to your letter dated October 14, 1997 requesting for a ruling as to whether or not a general professional partnership is subject to the following internal revenue taxes: (a) income tax; (b) value-added tax; and (c) expanded withholding tax. LLpr It is represented that you are a general professional partnership duly registered with the Securities and Exchange Commission engaged in the practice of architecture. In reply, please be informed that a general professional partnership formed for the purpose of practising a profession, such as architecture, is exempt from income tax pursuant to Section 27(A) of the Tax Code of 1997, and consequently income payments to said partnership for professional services rendered are exempt from the withholding tax provisions of Revenue Regulations No. 6-85, as amended, otherwise known as the Revised and Consolidated Expanded Withholding Tax Regulations, implementing then Section 50(b) of the Tax Code, as amended (now Section 57(B) of the Tax Code of 1997). [BIR Ruling No. 178-92 dated May 29, 1992] However, general professional partnerships are required to file returns of their income in BIR Form No. 1704 for the purpose of furnishing information as to the share in the gains or profits which each partner shall include in his individual return. Individuals carrying on business in general professional partnership are, however, taxable on their distributive shares from the net income of such partnership, whether distributed or not, and are required to include such distributive shares in their individual income tax returns. The returns of general professional partnerships should be rendered on or before April 15 of each year. (Section 43, Tax Code of 1997) Moreover, any amount paid or payable 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., shall be subject to a 15% creditable withholding tax (Section 1, Revenue Regulations No. 1-89 effective January 1, 1989) (BIR Ruling No. 093-92 dated March 19, 1992) Furthermore, under Section 5 of R.A. No. 8424, otherwise known as the Tax Reform Act of 1997, the effectivity of the imposition of the value-added tax on services performed in the exercise of profession or calling subject to the professional tax under the Local Government Code or Republic Act No. 7160 and professional services performed by registered general professional partnerships is deferred until December 31, 1999 unless Congress deems otherwise. Provided, that the said services shall continue to pay the applicable tax prescribed under the Tax Code prior to its amendment by R.A. No. 8424. Such being the case, general professional partnership shall be subject to VAT effective January 1, 2000 unless Congress passes a law otherwise. Very truly yours, (SGD.) LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue