Taxation of Partners in a GPP

GPP-not an income taxpayer-merely a pass through entity

- required to file an income tax return annually
-partners themselves are subject to income tax based on their distributive share

Partner of GPP v. Partner of a GP/BP

-income classification
GPP- Income from BTP
GP- DIVIDEND INCOME
-Tax treatment
GPP- normal income tax
GP- FWT
-Deductions
GPP- MAY BE ALLOWED
GP- not allowed

TAX ON PASSIVE INCOME SUBJECT TO FWT

1. DIVIDEND INCOME - cash, property, stock, liquidating
-cash/property- fwt based on the amount of gross earnings without the benefit of
deductions
-rates will depend on the type of individual taxpayer
RC-fwt 10% received div income from domestic corp
ra/nrc- same
nraetb-domestic corpo 20% fwt
nranetb-domestic corpo 25% fwt

Dividend received from a non resident foreign corp- sourced outside-shall not be
subject to tax unless resident citizen-subject to normal tax

Dividend received from a resident foreign corp - if sourced from within or ratable
portion thereof shall be subject to normal tax

STOCK DIVIDENDS- not subject to income tax- unrealized gains

exc.
1. the corporate taxpayer which declared the div income granted 2 options to
stockholder
avail cash/PROP DIVIDEND or stock and some of the sh availed of the options of cash
or prop. stockholders shall be taxed- percentagesof ownership will increase-subject
to income tax
2. dividend equivalence- GR; redemption/cancellation is not subject to income tax
is a capital transaction
exc.
a. there is redemption or cancellation
b. the transaction involves stock dividends
c. the time and manner of the transaction makes it essentially equivalent to a
distribution of taxable dividends
-determining factor - the reason behind the declaration of the stock dividend

LIQUIDATING DIVIDENDS- received from a corporation that has dissolved its business
operations
-depends whether the dividends is return ON capital or return OF capital

2. ROYALTIES
General Rule: 20%FWT based on the amt of gross earnings
Exception -10% FWT - Literary works, books, or musical compositions- only applies
to individual taxpayers

3. Interest income
a. bank deposit and deposit substitutes
- 20% fwt
exc-
1. expanded foreign currency deposit - 15% fwt if taxpayer is resident
non-resident-exempt
2. long-term deposit-exempt from tax if the deposit has a holding period of at
least 5yrs. when the deposit is pre terminated, it will be subject to tax.
*resident foreign corp -7.5%fwt
b. other agreements which are not classifed as bd/bs
- normal tax

gains from the sale of bonds, debentures or other certificate if indebtedness-

excluded from the gross income if the holding period for such bond is more than 5
years

interest income from long term deposit- will be exempt if the holding period is at
leas 5 years

deposit substitutes- alternative form of obtaining funds from the public - public--
20 or more individual or corporate lenders at any one time