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PARTNERSHIPS

On joint ventures:
In order that a joint venture or consortium formed for the
purpose of undertaking construction purpose is not
considered a taxable corporation, the joint venture must be:

Deposits/ advances made by clients to GPP:
When a GPP receives cash deposits or advances from a
client, the GPP must issue a corresponding official receipt
(OR).
The amount received shall be booked as income of the GPP
and shall form part of the GPP s gross receipts and subject to
VAT if applicable.
When the GPP pays third parties on behalf of the client, the
GPP can claim such as expenses provided the OR issued by
the third party is in the name of GPP.

1. For the undertaking of a construction project
2. Should involve joining or pooling resources by licensed
local 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 project
development services, the resulting joint venture is not
taxable as a joint venture for the purpose of undertaking
construction projects .

The allocation of units between the corporations is likewise
not taxable as no income is realized by either corporation.
The allocation of units between them is a mere return of
capital.

Non-Taxable
Partnership

Taxable Business
Partnership

 These are general professional
partnerships (like your regular law
firm)

 Joint
venture
or
consortium
agreement formed for the purpose of:
(1) undertaking construction projects (2)
engaging
in
petroleum,
coal,
geothermal
and
other
energy
operations- pursuant to an operating or
consortium agreement under a service
contract with the government.

 Those whose income is derived from trade or
business (considered corporations under
Section 22 (B) of the Tax Code)
partnerships, no matter how created or
organized

 Take note = Art. 1767 of the Civil Code which
says = by contract of partnership, two or
more persons bind themselves to contribute
money, property or industry to a common
fund, with the intention of dividing the profits
among themselves.

With regard to DISTRIBUTIVE SHARE

 Forms part of partner s gross income in
the ITR subject to the graduated
income tax rates

 Partner s distributive share in the ext
income is subjected to a final tax of
10%

 Subjected to a creditable withholding
tax of 15%
If income payments exceed P720k =
to be withheld
10% if income payments do not
exceed P720k
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 partnership
regardless if they share or do not share profits. (there must be an
unmistakeable intention to form a partnership)

 The receipt of share of profits is a prima facie evidence that he is a partner
in the business, but no such inference shall be drawn if they were received:
1.) As debt by installment
2.) As wages of an employee
3.) As rent to landlord
4.) Annuity to a widow
5.) As interest on a loan
6.) As a consideration for the sale of a goodwill of a business or other property
by installments

With regard to PARTNER S SHARE IN
NET LOSS OF THE PARTNERSHIP

 May be claimed as a deductible
expense in his personal income tax
return

 Not deductible since they are subject to
final tax

With regard to HOW THE
PARTNERSHIP IS TAXED

 Still required to file an annual
information return on their incomes and
expenses
for
the
purpose
of
ascertaining the partner s taxable
shares.

 Deemed and treated as corporations
subject to the corporate income tax
rate.

Ona v. CIR = When heirs use the inheritance or income
derived therefrom as a common fund to produce profits for
themselves, the heirs are taxable as unregistered
partnership.

However, not all co-ownerships are unregistered
partnerships. There must be an unmistakeable intention to
form a partnership.
So when children sold land acquired from their father
in an isolated construction, the Court merely
considered it as co-ownership and not a taxable
unregistered partnership.