7/17/2019 Tax on Partnerships

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PARTNERSHIPS

Non-TaxablePartnership

Taxable BusinessPartnership

These are general professionalpartnerships  (like your regular lawfirm)

Joint venture or consortiumagreement formed for the purpose of:(1) undertaking construction projects (2)engaging in petroleum, coal,geothermal and other energyoperations- pursuant to an operating or

consortium agreement under a servicecontract with the government.

Those whose income is derived from trade orbusiness (considered corporations underSection 22 (B) of the Tax Code)partnerships, no matter how created ororganized

Take note = Art. 1767 of the Civil Code whichsays = by contract of partnership, two ormore persons bind themselves to contributemoney, property or industry to a common

fund, with the intention of dividing the profitsamong themselves.

With regard to DISTRIBUTIVE SHARE

Forms part of partner s gross income inthe ITR subject to the graduatedincome tax rates

  Subjected to a creditable withholding

tax of 15%If income payments exceed P720k =to be withheld10% if income payments do notexceed P720k

Partner s distributive share in the extincome is subjected to a final tax of10%

With regard to PARTNERS SHARE INNET LOSS OF THE PARTNERSHIP

May be claimed as a deductibleexpense in his personal income taxreturn

Not deductible since they are subject tofinal tax

With regard to HOW THEPARTNERSHIP IS TAXED

Still required to file an annualinformation return on their incomes andexpenses for the purpose ofascertaining the partner s taxableshares.

Deemed and treated as corporationssubject to the corporate income taxrate.

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On joint ventures:

In order that a joint venture or consortium formed for thepurpose of undertaking construction purpose is not

considered a taxable corporation, the joint venture must be:

1. For the undertaking of a construction project2. Should involve joining or pooling resources by licensedlocal contracts

3. The contractors are engaged in construction business;4. The joint venture itself must be licensed under the PCAB

Hence, when two corporations enter into a Joint Development Agreement for the formation of a joint venture wherein one

will contribute property and the other will contribute projectdevelopment services, the resulting joint venture is not

taxable as a joint venturefor the purpose of undertaking

construction projects.

The allocation of units between the corporations is likewisenot taxable as no income is realized by either corporation.The allocation of units between them is a mere return ofcapital.

Deposits/ advances made by clients to GPP:

When a GPP receives cash deposits or advances from aclient, the GPP must issue a corresponding official receipt

(OR).

The amount received shall be booked as income of the GPPand shall form part of the GPP   s gross receipts and subject toVAT if applicable.

When the GPP pays third parties on behalf of the client, the

GPP can claim such as expenses  provided the OR issued bythe third party is in the name of GPP.

IMPORTANT RULES ON PARTNERSHIP:

Persons not partners to each other are not partners as to third persons

Co-ownership or co-possession does not in itself establish a partnershipregardless if they share or do not share profits. (there must be anunmistakeable intention to form a partnership)

The receipt of share of profits is a prima facie evidence that he is a partnerin the business, but no such inference shall be drawn if they were received:

1.) As debt by installment2.) As wages of an employee3.) As rent to landlord4.) Annuity to a widow5.) As interest on a loan6.) As a consideration for the sale of a goodwill of a business or other propertyby installments