Tax Liability of Patent Agents

March 8, 1988 BIR RULING NO. 090-88 29 (a) (1) (A) 000-00 090-88 Gentlemen : This refers to your letter dated November 11, 1987 stating as follows: "The Poblador Azada & Associates is duly registered with the Securities and Exchange Commission as a partnership whose principal purpose is to engage in business as patent, agents, that is, to practice in the Philippines Patent Office as representatives of applicants for the registration of trademarks, patents and copyrights. Its capitalist partners are one lawyer and a patent agent; and some of its employees who are either lawyers or patent agents are industrial partners. Under the Articles of Partnership, the industrial partners and other employees are entitled to 10% of the net taxable income, and that the industrial partners shall remain as partners only as they are employed by the partnership." In connection therewith, you now request a ruling on the following: "1. Since patent agents are not among the professionals subject to the professional tax, is the partnership Poblador Azada & Associates considered an ordinary corporation for purposes of the income tax law? "2. Is the 10% share of the employees and industrial partners deductible from the gross income of the partnership as part of necessary expenses?" In reply, please be informed as follows: 1. A tax of 35% is imposed upon the taxable income received during each taxable year from all sources within and without the Philippines by every partnership, no matter how created or organized, but not including general professional partnerships. [Sec. 24(a), Tax Code, as amended by Executive Order No. 37] General professional partnerships are partnerships formed by persons for the sole purpose of exercising their common profession, no part of the income of which is derived from engaging in any trade or business. [Sec. 20(b), Tax Code, as amended] Since the principal purpose of your partnership is to engage in business as patent agents, you are not formed for the sole purpose of exercising a common profession; hence, you are not considered a general professional partnership. Such being the case, you are subject to the corporate income tax imposed by Section 24(a) of the Tax Code, as amended. 2. The 10% share in the net taxable income of the partnership received as part of compensation by the employees and industrial partners who, as represented, are actually employees of the partnership is subject to the withholding tax on wages under Section 71 of the Tax Code; and is deductible from your gross income as an ordinary and necessary expense pursuant to the Section 29(a)(i)(A) of the same Code. aisadc Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner