Re: Exemption from Paying Local Business Tax of General Professional Partnerships (GPPs)

March 7, 2017 BLGF OPINION NO. 004-2017 CO-LFPS-PPPSD Atty. Gregorio M. Batiller, Jr. Senior Partner Gonzales, Batiller, Leabres & Reyes 7F ALPAP 1 Bldg.,140 L.P. Leviste St., Salcedo Village, Makati City SUBJECT : Re: Exemption from Paying Local Business Tax of General Professional Partnerships (GPPs) Dear Atty. Batiller : This refers to your letter dated 13 January 2017, addressed to the Secretary of Finance, which was forwarded to this Bureau for appropriate action, requesting for confirmation on the issue of whether or not GPPs, such as law partnerships, are exempt from paying the local business taxes and need not pay the Mayor's Permit fee. cSaATC Representations are made that Gonzales, Batiller, Leabres & Reyes (GBLR) is a GPP engaged in legal practice. It is likewise represented that in accordance with Section 139 of the Local Government Code (LGC) of 1991, all the partners and the associate lawyers pay professional tax imposed on the practice of profession. In addition to the professional tax, the firm has also been regularly paying local taxes and the Mayor's permit fee to the City Government of Makati. To support the above request, GBLR cited the following legal bases: 1. Sec. 22 (B) of the National Internal Revenue Code (NIRC) defines General Professional Partnerships as "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; 2. DOF Opinion in a Letter addressed to the Integrated Bar of the Philippines, the Philippine Bar Association, and PICPA, dated 11 April 1998, providing that General Professional Partnerships are not subject to local business tax; and 3. DOF Letter addressed to the IBP-Rizal Chapter, dated 11 February 2015, thru the Bureau of Local Government Finance, reiterating its view that GPPs are exempt from paying local business taxes, citing the 11 April 1998 Letter. In addressing your concern, it is worth mentioning that in the case of Tan v. del Rosario ,G.R. No. 109289, dated October 3, 1994, the Supreme Court ruled that, "a general professional partnership, unlike an ordinary business partnership (which is treated as a corporation for income tax purposes and so subject to the corporate income tax),is not itself an income taxpayer. The income tax is imposed not on the professional partnership, which is tax exempt, but on the partners themselves in their individual capacity computed on their distributive shares of partnership profits." Accordingly, this Bureau holds and confirms that the abovementioned opinions are still in force and effect, until such time that the same are modified or rescinded accordingly by the same or higher administrative authority or by the Court of competent jurisdiction. CHTAIc It bears emphasis, however, that GPP, in this case, GBLR, shall be subject to the payment of the Mayor's Permit fee and other regulatory fees and charges imposed under a duly enacted tax ordinance of the City of Makati. The imposition of Mayor's Permit and business permit fees proceeds from the power of LGUs to regulate any business, activity or undertaking conducted or to be conducted within its territorial jurisdictions. This power to regulate emanates from police power which is expressly provided under Section 16 (General Welfare Clause) of the LGC. Business establishments are subject to these regulatory fees, unless expressly declared by law to be exempt therefrom. On the other hand, the payment of regulatory fees and charges are for services rendered by the local government unit, such as garbage disposal and management, sanitary inspection, electrical inspection, and similar others, as well as rental for use of public utilities owned and operated by the local government, such as for consumption of water, electric power and toll fees for use of public roads and bridges and the like. This Opinion, however, is issued based on the information provided. If upon subsequent verification or submission of information proves the contrary, this Opinion will be deemed null and void, and without effect. We hope that we have provided clarity on the matter. Very truly yours, (SGD.) NIO RAYMOND B. ALVINA OIC Executive Director