Bureau of Local Government Finance Opinion

August 25, 2000 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION Capt. Ernesto M. Villas, Jr. Secretary/Treasurer Manila Pilot's Associates Company 3/F Room 302 Palacio Grande Cor. Gen. Luna and Anda Sts. Intramuros, Manila Sir : This refers to your letter dated August 11, 2000 requesting confirmation of your position that: (a) As a general professional partnership, the Manila Pilot's Association Company (MPAC) is not subject to local business tax, license and fees under the Amended Revenue Code of Manila pursuant to Sections 131 and 139 of the LGC. (b) Except for the professional tax under Section 11 of the Amended Revenue Code of Manila, the individual partners who compose MPAC are likewise not subject to the local business tax, license and fees under the said Code of Manila pursuant to the same provision of the LGC. Representations are made that MPAC is a general partnership duly organized and existing under the laws of the Philippines for the purpose of rendering pilotage service to domestic and international vessels approaching and leaving the ports of Manila and Bataan. AHCcET It is composed of harbor pilots who are duly licensed by the Philippine Regulatory Commission (PRC) and authorized by the Philippine Ports Authority (PPA) and the Maritime Industry Authority (MARINA) to provide pilotage service in the ports of Manila and Bataan. Its principal office is located at the Port Area of Manila. MPAC claims that recently, the City Treasurer of Manila issued a letter of Authority to one of her examiner for the examination of your books of accounts and other financial records from previous unexamined years to December 31, 1999 and based on the preliminary discussions it appears that the Office of the City Treasurer has taken the position that MPAC is liable to pay local business tax, license and fees to said city pursuant to the provisions of the Amended Revenue Code of Manila. It is your contention that MPAC is not subject to local business tax because, as a general professional partnership, it is not engaged in business but in the exercise of profession. It is, therefore, exempt from the payment of local business tax which is imposed on the right to engage in business. MPAC cited Sections 143 and 131 of the LGC to support the above claim. MPAC contends further that it is not considered as a taxable corporation under the LGC and is therefore not a taxable entity, invoking Section 131 (i) of the LGC quoted as follows: "Section 131. Definition of Terms. When used in this Title, the term: "(a) . . . "(i) Corporation includes partnerships, no matter how created or organized, joint-stock companies, joint accounts (cuentas en participation), associations or insurance companies but does not include general professional partnerships and a joint venture or consortium formed for the purpose of undertaking construction projects or engaging in petroleum, coal, geothermal, and other energy operations or consortium agreement under a service contract with the government. 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. CDAcIT "xxx xxx xxx." In view of the aforequoted provisions, MPAC contends finally that as a general professional partnership, MPAC is not a separate taxpayer from the individual partners. Thus, the City of Manila should not impose local business tax as the individual partners are already subject to professional tax. Doing so will give rise to double taxation since the exercise of the individual partners of MPAC of their common profession as harbor pilots will be subject to tax twice for the same purpose by the same taxing authority during the same taxing period. MPAC likewise invoked the ruling dated April 11, 1998 of the Department of Finance addressed to the Integrated Bar of the Philippines (IBP), Philippine Bar Association (PBA), and Philippine Institute of Certified Public Accountants (PICPA) the pertinent portion of which is quoted as follows: "1. A GPP is not considered a corporation and is therefore not a taxable entity. "2. A GPP is not considered a separate taxpayer from the partners. "3. The professionals which compose the GPP are subject to the individual income tax under the NIRC and the professional tax under the Local Government Code. "4. In conclusion, it is clear that GPP cannot be considered as a contractor which is subject to a local business tax since: 1) it is not a taxable entity; 2) no part of its income is derived from engaging in any trade or business; 3) the income is imposed on the partners. "It is therefore held by the DOF that a GENERAL PROFESSIONAL PARTNERSHIP IS NOT SUBJECT TO A LOCAL BUSINESS TAX AND OTHER FEES AS A CONTRACTOR. THE PARTNERS WHICH COMPOSE THE GPP ARE NOT ALSO SUBJECT TO A LOCAL BUSINESS TAX SINCE THEY ARE ALREADY SUBJECT TO ANOTHER LOCAL TAX, I.E., THE PROFESSIONAL TAX." DAEcIS In view of the aforequoted ruling and considering the representations laid out above, this Bureau finds that your views on the matter are correct, and concurs therein. It bears emphasis, however, that no part of the income of MPAC is derived from engaging in any trade or business. It is likewise emphasized that MPAC shall be liable to the payment of fees and charges as compensation for services actually rendered by the City of Manila. The City Treasurer of Manila is being furnished a copy of this letter for her information and guidance. Very truly yours, (SGD.) ANGELINA M. MAGSINO Deputy Executive Director Officer-in-Charge <http://www.blgf.gov.ph/downloads/opinion/localtax/2000/a2000-0804.pdf> last visited on October 2, 2013.