Whether the AQY and Associates is to be Treated as a General Professional Partnership for Income Tax Purposes

March 19, 1992 BIR RULING NO. 093-92 20 (b) 000-00 093-92 AQY and Associates Graduate School Lyceum of the Philippines Intramuros, Manila Attention: Dr . Angel Q . Yoinoco Managing Director Gentlemen : This refers to your letter dated January 30, 1992 requesting for a confirmation of your opinion that, for income tax purposes, you are to be treated as a general professional partnership. It is represented that AQY and Associates is a general partnership existing under and by virtue of Philippine Laws; that it is registered with the Securities and Exchange Commission as such, as of April 2, 1991; that the purposes for which this partnership is formed are as follows: 1. To provide management, investment and technical advice for commercial, industrial, manufacturing and other kinds of enterprises; 2. To undertake, carry on, assist or participate in the promotion, organization, management, liquidation or reorganization of corporations, partnerships and other entities; except the management of funds, securities, portfolio or similar assets of the managed entities or corporations; 3. To act as managers or managing agents of persons, firms, associations, corporations, partnerships and other entities; 4. To undertake surveys and studies in support of its management counselling services and in rendering technical assistance; 5. To provide training programs in the areas of public finance, economics, management, public administration, and other related areas and disciplines; 6. To manage seminars and conferences in the areas of public finance and economic development; and 7. To promote and publish studies and researches on above areas of concern; and finally, that it is a general professional partnership formed for the sole purpose of exercising the partner's profession in economics. In reply, please be informed that Section 20(b) of the Tax Code, as amended, provides that 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. As such, general professional partnerships are not subject to income tax, but are required to file returns of their income on 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 partnerships are, however, taxable upon their distributive shares of the net income of such partnership, whether distributed or not, and are required to include such distributive shares in their individual returns. The returns of general professional partnerships should be rendered on or before April 15 of each year if on the calendar year basis or within 15 days of the fourth month following the end of the fiscal year. (Section 22, Revenue Regulations No. 2 as amended by P.D. 778 and Section 4 of Revenue Regulations No. 8-75 dated October 29, 1975). 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 of Revenue Regulations No. 1-89 effective January 1, 1989). On the basis of the foregoing, this Office is of the opinion as it hereby holds that AQY and Associates is classified as a general professional partnership for income tax purposes, provided that no part of its income is derived from engaging in any trade or business. adc Very truly yours, JOSE U. ONG Commissioner of Internal Revenue