BIR Ruling [DA-593-04]

November 23, 2004 BIR RULING [DA-593-04] 26; DA-222-2001 Donato Em Santos Zarate & Rodriguez Attorneys and Counselors-at-Law 7/F Electra House, 115 Esteban Street, Legaspi Village, Makati City Attention: Atty. Demosthenes B. Donato Partner Gentlemen : This refers to your letter dated March 9, 2004 requesting for a confirmation of your opinion that the law firm DONATO EM SANTOS ZARATE & RODRIGUEZ is exempt from income tax. It is represented that DONATO EM SANTOS ZARATE & RODRIGUEZ is a general professional partnership formed, organized and existing under the laws of the Republic of the Philippines, with Securities and Exchange Commission Registration No. A199707964, created for the primary purpose of engaging in the practice of law. 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 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. cTDIaC Moreover, general professional partnerships are exempt from the imposition of withholding tax under Revenue Regulations (RR) No. 2-98, as amended. 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 RR 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, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal and Inspection Group