Bureau of Local Government Finance Opinion

January 23, 2015 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION 1st Indorsement Respectfully returned to the City Treasurer, Pasig City, her within letter dated January 12, 2015 regarding the Business Taxes being collected from General Professional Partnerships (GPPs). That Office cited the following opinions rendered by this Bureau to wit: 1. DOF letter dated April 11, 1998 addressed to the Integrated Bar of the Philippines (IBP), Philippine Bar Association (PBA), and Philippine Institute of Certified Public Accountants (PICPA) signed by Acting Secretary MILWIDA M. GUEVARA which states that GPPs are not subject to local business tax and other fees as contractor and that the partners are not also subject to a local business tax since they are already subject to another local tax, i.e. , the professional tax. 2. BLGF letter dated October 27, 2008 addressed to Atty. ARNEL C. MANALOTO signed by Executive Director MA. PRESENTACION R. MONTESA stating that Mayor's Permit fee may no longer be collected from professionals who are paying the professional tax like doctors, dentists or lawyers. However, if they maintain a clinic/office, the operation of such clinic/office shall be subject to the payment of the Mayor's permit fee, the business tax based on gross receipts as well as the regulatory fees or service charges imposed by the cities or municipalities under a duly-enacted ordinance. 3. BLGF letter dated September 9, 2009 addressed to Dr. ANNA DE VERA SANGIL signed by Executive Director MA. PRESENTACION R. MONTESA which is self-explanatory. In view of the letter dated October 27, 2008 addressed to Atty. MANALOTO, that Office started to reclassify the registered GPPs from Administrative Offices to Service Contractors. While some practitioners agree to the reclassification, there are others who are insistent on getting a definitive ruling. Moreover, your contention is anchored on the BIR's imposition of the 12% VAT on services that cover performance of all kinds of services in the Philippines for a fee. Individuals are taxable for income from employment, business, trade and exercise of profession except those subject to final tax, capital gains and passive income. When individuals form a GPP, they create a juridical personality separate and distinct from the owners but there lies the question of its taxability. aScITE It is further submitted that there is no provision under the Local Government Code of 1991 (LGC) that expressly exempts GPPs from local business tax. Furthermore, GPPs are either subjected to VAT or percentage taxes which are nationally imposed business taxes, thus, the imposition of local business tax is proper. In view thereof, it is informed that as far as the tax liability of general professional partnership is concerned, the BLGF has consistently adopted the opinions, copy enclosed, rendered by the Department of Finance (DOF) as follows: 1. Letter dated April 11, 1998 of the then Acting Secretary of the DOF wherein it was held that: 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; and 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 trace or business; 3) the income (tax) is imposed on the partners. 2. Letter dated December 6, 1999 of Secretary Edgardo B. Espiritu addressed to Dr. Flor S. Enriquez, Philippine Dental Association on the request for opinion on whether cities or municipalities may validly require dentists to secure a Mayor's Permit before they can practice their profession and whether a dental clinic may be taxed as a business establishment, it was held as follows: a. Such professional who has paid the corresponding professional tax to the province where he practices his profession shall be entitled to practice his profession in any part of the Philippines without being subjected to any other national or local tax, license or fee, including the Mayor's Permit or license fee, for the practice of such profession. b. As to dental clinics, they are established as a direct a consequence of the practice of the dental profession. They are, necessarily, for the exercise of such a profession. c. Therefore, to impose a graduated tax on a dental clinic on the premise that it is a "business establishment rendering or offering to render professional services" would be to impose a local tax on the practice of profession. This would be in contravention of the Local Government Code. Accordingly, it is the view of this Bureau that said opinions still hold until such time that the same are modified or rescinded accordingly by the same administrative authority or by the Court of competent jurisdiction. HEITAD As regards the letter dated October 27, 2008 addressed to Atty. MANALOTO, it may be clarified that what is being taxed and regulated is not the professional itself but the office being maintained as viewed from the principle of a juridical person created by law and recognized as a legal entity having distinct identity, legal personality and has duties and rights separate from its owner. Thus, if a professional is operating a business, say an office, a Mayor's permit fee should still be secured in order to operate said business which, furthermore, shall be subject to the tax on business, regulatory fees and service charges imposed by the local government concerned under a duly-enacted tax ordinance in view of Section 147, and in relation to Section 151 in case of cities, of the LGC, quoted as follows: " SEC. 147. Fees and Charges . The municipality may impose and collect such reasonable fees and charges on business and occupation and, except as reserved to the province in Section 139 of this Code, on the practice of any profession or calling, commensurate with the cost of regulation, inspection and licensing before any person may engage in such business or occupation, or practice such profession or calling ." (Emphasis ours) As regards the reclassification of GPPs from Administrative Offices to Service Contractors, it bears emphasis that said reclassification is not the basis for imposing business tax to GPPs. As cited in DOF opinion dated April 11, 1998, 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 tax or a local tax of a similar nature is imposed on the partners in the form of "professional tax". In view thereof, it may be worth quoting the definition of the term "corporation" both under Section (B) of R.A. No. 8424, also known as the Tax Reform Act of 1997, which was adopted in toto in Section 131 (i) of the LGC, thus: " Section 22. Definitions . When used in this Title: (A) . . . . (B) The term 'corporation' shall include partnerships, no matter how created or organized, joint-stock companies, joint accounts (cuentas en participacion) , association, 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 pursuant to an operating 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 . (Emphasis supplied) xxx xxx xxx." Be guided accordingly. ATICcS Very truly yours, (SGD.) SALVADOR M. DEL CASTILLO OIC-Executive Director