RMC No. 89-2012: Clarifies the tax implications and recording of deposits/advances made by clients of General Professional Partnerships for expenses

Summary

RMC No. 89-2012 clarifies the tax implications and recording of client deposits or advances for expenses made to General Professional Partnerships (GPPs).

Key points

1. Receipt and income. The GPP issues an official receipt on receiving the deposit or advance. The amount is booked as GPP income, forms part of gross receipts and is subject to VAT, if applicable.
2. GPP’s expenses. Expenses the GPP incurs and pays for the client are recorded as the GPP’s own expenses for Income Tax if the third-party receipt or invoice is in the GPP’s name. The GPP may deduct them from gross income, but the client may not.
3. Client’s deduction. Payments by the client to the GPP are deductible as professional fees if substantiated by the GPP’s official receipts, under Section 34 (A)(1) of the Tax Code.
4. Other points. The GPP and the client may still use the Optional Standard Deduction. The Circular also gives a summary of transactions and pro-forma entries for Cash Basis and Accrual Basis accounting.

Who is affected

• General Professional Partnerships
• Clients of General Professional Partnerships

Summary by Tax Resources PH. It is not a substitute for the full text of the issuance or professional advice.