TAXABILITY OF PARTNERSHIP

1. Commercial Partnership  Income TAXABLE Partnership

2. General Professional Partnership  Income Tax EXEMPT Partnership

A, B, & C LAWFIRM  Exempt from tax but required to file

It will be the partners
in their respective ITR of their share
who will be liable for the
in the income for the purpose of
payment of tax.
REGULATORY REPORTING.

Question: Is ABC Law firm liable for tax?

Answer: No. ABC Law firm is not liable for payment for tax because it is a general professional
partnership and as such is an income tax exempt partnership. However, it is the partners are the
ones liable and must file their ITR for regulatory purposes.

Question: ABC law firm reported service revenue in the amount of P100M. How is the law firm
taxed?
Answer: Cash basis  Based on the cash collected from the clients not on the actual services
rendered but on the basis of cash collected.

Service Revenue P 100M (cash collection)

Less: Allow.Deduc. (P 91M)
---------------------------------------------------------------------------------
Net Taxable Income 9M  The law firm will not be taxed.
Instead, ABC (the partners) shall
be the one to file in their
respective ITR the amount of 3M
as their share in the net income of
the firm.

Question: what if instead of 3M, only 1M was remitted by the partners? What will they declare
in their ITR?
Answer: Still, 3M because there are two types of receipt. Actual receipt and constructive receipt.
Here, there is constructive receipt.
 CO-OWNERSHIP

As a rule, they are exempt because it does not carry with it any personality separate and distinct from
that of a partnership. Hence, liability will only attach if they decide to turn the co-ownership into a
partnership.

Rent Revenue: P 10M

Less: Expenses (7M)
ABC -----------------------------------------------
Building Net Income: P 3M  NOT taxable
3M will be divided into the co-owners
and they will be the one to report their
share in the income in their respective
ITR.  1M each.

ESTATE
1. Estate under extra-judicial settlement  Income tax EXEMPT  Income is taxable on the heirs
themselves.

The heirs will be liable for the tax of

their share in the net income of the
estate.

2. Estate under judicial administration  TAXABLE entity

- The executor/ administrator will obtain the TIN who shall file and shall be liable to pay the
tax.
- After the settlement of the estate, the estate will be distributed to the heirs and their share
shall be subject to tax to which liability shall be borne on the heirs themselves.
- The executor, after the case has been settled shall file an estate tax return.

TRUST REVOCABLE (Non-taxable)  who will pay tax? – TRUSTOR

IRREVOCABLE (Taxable)  Trustee will report in the ITR

2001 2002
Parties: Revenue: 100M Revenue: P 0
Less: (30M)  reserved the trustor Less: claim of beneficiary
1. Trustor
 30M will be taxed to the trustor (5M)  will not be taxed
2. Trustee
Less: claim of beneficiary because na-tax na last
3. Beneficiary
(10M)  taxed to the beneficiary year (2001)
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60M  will be taxed to the trustee
JOINT VENTURE

As a rule, it is a taxable entity. However, it will not be liable for tax if the joint venture is created for
petroleum oil or infrastructure projects of the government.

CORPORATION

Revenue incurred
Revenue incurred
OUTSIDE the Situs of taxation
WITHIN the Philippines
Philippines
Domestic Corporations
 Created under
the PH Laws (BP   its being as an entity
68)
Resident Foreign
Corporations
Within: Situs of taxation
 Created under
is the source of income
the laws of
other country   because they are only
taxable for income
 DOING
derived within the PH
BUSINESS in the
PH
Non-Resident Foreign Gross Income tax
Corporations taxation
 NON DOING
BUSINESS in the
  25% tax withheld will
automatically be
PH remitted to BIR.
 MCIT NCIT
OR
2% x Gross income Whichever is HIGHER 30% x Total Income

Available only upon

the fourth year of
business operation.
INDIVIDUAL
WITHIN OUTSIDE SITUS
RC The residency and
  citizenship of the
taxpayer.
NRC (OFW)  
RA  
NRA  
SENIOR CITIZEN  
MINIMUM WAGE
 
EARNERS

TRAIN LAW

Employed  20% - 35%

First P250, 000 is EXEMPT