REVENUE MEMORANDUM CIRCULAR NO. 89-2012 issued on December 28, 2012 clarifies the tax implications and recording of deposits/advances made by clients of General Professional Partnerships (GPPs) for expenses.

          Upon receipt of the cash deposits/advances from the client, the GPP shall issue an official receipt. The amount received shall be booked as income of the GPP and form part of the GPP’s gross receipts and subject to Value-Added Tax, if applicable.

         The GPP shall record the expenses it incurred and paid on behalf of the client as its own expenses, for Income Tax purposes, if the official receipt/invoice issued by the third-party is in the name of the GPP. Said expenses, supported by official receipts/invoices issued by the third-party establishments in the name of the GPP, may be claimed by the latter as deductions from its gross income. Conversely, these expenses may not be claimed as deductions from the gross
income of the client.

          All payments made by the client to the GPP shall be allowed as deduction from its gross income as professional fee/s provided that they are duly substantiated by official receipts issued by the GPP pursuant to Section 34 (A)(1) of the Tax Code.

         The GPP and client are not precluded from availing of the Optional Standard Deduction provided under the existing tax laws, rules and regulations.

        The summary of transactions and the corresponding pro-forma entries in the Books of Account of the GPP and the client (for Cash Basis and Accrual Basis of Accounting) are specified in the Circular.