e) computation of the distributive shares of partners same with corporations (Sec.

26, NIRC)
f) joint venture/consortium same tax liability as partners in exempt partnership
Parties:
X single
Y married
XY GPP formed in 2006
*Both parties are sharing in the partnership net income or loss equally
XY
X
Y
Gross income from profession/others
P750,000
P150,000
P250,000
Expenses
P450,000
P 80,000
P130,000
(net income) P300,000 (individual taxpayers, see below)
- not subject to income tax
X and Y, as individual taxpayers, must report for taxation to the extent of their shares
in the GPP.
Partnership subject to income tax (Sec. 22(b) NIRC)
General Rule: ALL are subject to corporate tax income
Exceptions: Joint venture and GPP
Dividends - profits distributed to stockholders by the partnership
Net income subject to corporate income tax, after deducting such tax, shall be
deemed to have been actually or constructively received by the partners in the same
taxable year when the net income was declared, and shall be taxed to them in their
individual capacity; whether distributed or not.
Share of partners in all other taxable partnership
In net profits: subject to final tax of 10-15%
For services rendered: compensation income subject to Sec. 24A
What is the income taxes of each?
X single

Y married

Parties:
XY general co-partnership in trade

Taxable income on the general co-partnership (XY) = Net income x 30%

Taxable income after tax = (Taxable income of XY Income Tax)
Share of each partner = of Taxable income after tax
Final tax of each partner = 10% of share of each partner
Summary
GPP is not subject to corporate income tax, and withholding tax for professional
services.
However, the income is taxable in the hands of each partner.
What is the net income of a NRAETB in his distributive share after tax of a
business partnership?
Subject to 20% Final Withholding Tax
Partners share in the net loss of a business partnership?
Not deductible from his personal income tax.
Shares of individual partners in the net income of a GPP?
Subject to 10-15% creditable withholding tax

Share in the net loss may be claimed as a deductible expense in his personal tax
returns.
What is after-tax net profits?
Net profit of the partnership, as computed, less the corporate income tax imposed in
Sec. 27 of the Tax Code.
Rules in filing of tax return
Exempted partnership file annual income tax return (Annual Information Return).
Taxable partnership file quarterly income tax return (May 15, Aug 15, Nov 15), and
an annual return (Apr 15). In no case shall the filing be later than the given dates.
Income from GPP as taxable to partners in their personal income tax
Includes drawings, advances, sharing, allowances, stipends
Subject to a creditable withholding tax of 10%
Partners are held liable for the tax liability of the partnership in case of its inability to
pay
Net income = computed in the same manner as a corporation, following the same
rate, allowable deductions and exclusions.
What is net income
Income for distribution.
What is the share of an individual in the net income in an association, joint
account, joint venture or consortium taxable as a corporation?
The share shall be subject to the final withholding tax.
Partners contribution of real property to the partnership fund?
Not subject to income tax.
NRAETBs share in the distributable net income after tax of a partnership?
The share shall be subject to a final withholding tax of 20%.
Effect of a partner reporting his net share in the profits?
Election of itemized deduction.
Effect of election of itemized deduction?
Cannot claim optional standard deduction (OSD). Notably, in case he declares his
distributive share in the gross income undiminished by his share in the deduction, he
may avail of the 40% OSD in lieu of the itemized deduction.
Illustrate Classification of Corporations.
Domestic
Created
or
organized in the PH
under its laws

Resident foreign

Non-resident
foreign
CREATION
Created
and Created
and
organized under a organized under a
foreign law and foreign law, not
engaged
in
the engaged
in
business in the PH, business in the PH.
notwithstanding
Derives fixed or
Filipino
members determinate
therein. Acquisition income
from
of residency by sources within the

Special
Subject
to
tax
bases and rates
other
than
the
usual rates of 30%
and bases being
applied to ordinary
corporations.

establishment
of
branch or office for
that purpose of
doing business.
All income from
sources within and
without the PH

PH such as interest,
dividends,
rents,
royalties, etc.
Residency is not
required.
TAXABILITY
Income
realized
within the PH
Immaterial
if
licensed
to
do
business in the PH

RA 7227/FREE PORT
not entitled to income tax holidays; subject to 5% final tax on gross income earned
from their registered activities,
while unregistered activities are subject to the normal income tax including final
withholding tax of 20% in interest income earned from bank deposits,
the 7.5% on their foreign currency deposits,
the 5-10% capital gains tax, and
the of 1% stock transfer tax in sales of shares
REGISTERED FIRMS
Income payments to an entity in customs territory are not covered by the preferential
rate of 5% tax exemption enjoyed by a registered enterprise.
Dividends paid to share holders are subject to the usual appropriate final tax on
dividends.
Interest payments to creditors shall be subject to the appropriate tax imposable on
the recipient of such.
RR2-98/REGISTERED ENTERPRISE (RA7227)
Exempted from the 15% branch profit remittance tax.
Kinds of Special Domestic Corporations and tax rates/bases
1. Non-profit private educational institutions and non-profit hospitals
General Rule: 10%
But if the gross income from allied services, business, or activity exceeds 50%
of the total income from all sources: 30%
Predominance Test Rule
o Applies to non-profit proprietary schools and non-profit hospitals
o General Rule: 10% on taxable income, but does not include passive
income
But if the gross income from unrelated trade, business, or other activities
exceeds 50% of the total income from all sources: usual tax rate on ordinary
corporation shall apply
Income not covered by the 10%
o Bank deposits, trust funds, deposit substitutes and other similar
arrangements
o Capital gains from sale of shares not traded in SE
o Income derived from the expanded foreign currency deposit system
o Inter-corporate dividends
o Capital gains from disposition of real properties
May elect to deduct expenditures otherwise considered as capital outlays of
depreciable assets incurred during the taxable year for school expansion, or to
deduct allowances for depreciation thereof.

Doctrine of Incidental Tax Exemption

o Sec. 4(3); Art. XIV of the Constitution: exempts from income tax
derived from assets used in the operation of cafeterias, dorms,
hospitals, and bookstores provided that they are owned by such as
ancillary.
Not applicable to proprietary institutions and review schools because this is a
business venture, and shall be subject to the normal corporate tax rate of 30%
on its net taxable income.
2. GOCC, Agencies and Instrumentalities, including PAGCOR
Same tax rate upon their taxable income in a similar business, industry or
activity
Not applicable to GSIS, SSS, PHIC, PCSO
Duty Free merchandising division of the Philippine Tourism Authority is now
deemed subject to income tax (BIR Ruling 038-02)
3. Depositary banks
Interest income from foreign currency transactions and foreign loans.
Unrelated trade, business or other activity (TBA)
Any TBA, the conduct of which is not substantially related to the exercise or
performance by such schools or hospitals of its primary purpose or function.