Lor Calma & Partners

July 6, 2009 BIR RULING [DA-(C-115) 346-09] 26; RR 2-98; DA-(C058)197-08; DA-235-03 Lor Calma & Partners G/F State Condo I, 186 Salcedo Street Legaspi Village, Makati City Attention: Mr. Lorenzo L. Calma President Gentlemen : This refers to your letter dated May 28, 2009 requesting for a confirmation of your opinion that professional fees paid to Lor Calma and Partners are exempt from expanded withholding tax imposed under Revenue Regulations No. 2-98, as amended. It is represented that Lor Calma and Partners is a general professional partnership duly organized and existing under the laws of the Philippines, with SEC Registration No. PP200710329; that it is primarily engaged in the professional practise of architecture, interior design, master planning, and furniture design; that in paying for its fees, some clients question and call its attention on whether or not they should withhold taxes on the professional fees paid to the Company; that Lor Calma opined that professional fees paid to the Company are exempt from the requirement of withholding taxes imposed under RR 2-98, as amended, because the Company, being a general professional partnership, is a tax exempt entity pursuant to Section 26 of the Tax Code of 1997; and that consequently, income payments made thereto are exempt from the imposition of withholding tax. 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 for 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, general professional partnership 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 [DA-(C-058)197-08] dated September 5, 2008; 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 as different, then this ruling shall be considered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service