New Public Rulings on the Taxation of Partnerships

Public Ruling (“PR”) No. 7/2021 - Partnerships Taxation Part I – Determination of the Existence of a Partnership has been issued on 29 December 2021, outlining the determination of the existence of a partnership for income tax purposes.

Guidelines on Determining the Existence of a Partnership

This PR outlines the characteristics of a partnership based on its interpretation in accordance with the Partnership Act 1961 and Section 2 of the ITA. In order to constitute a partnership, partners must have agreed to carry on a business where there is a sharing of business profits and losses. According to this interpretation, a mere sharing of a business’ gross income or expenses does not constitute a partnership, regardless of whether the partners sharing such returns have any right or interest in any property from which or from the use of which the returns are derived.

Other factors to determine the existence of a partnership also include the following:

Mutual relation between the parties
Co-ownership
Deed of partnership

Generally, a joint venture is not deemed a partnership. There is a distinction between a joint venture and a partnership. Only when a joint venture has the basis of a partnership, it would be considered a partnership. Where a joint venture is formed for a limited term or for a single undertaking, the joint venture would likely not constitute a partnership.

Guidelines on Computation and Allocation of Income for Partnerships

PR No. 8/2021 - Partnerships Taxation Part II – Computation and Allocation of Income, issued on 29 December 2021, highlights the computation and allocation of income for partnerships.

According to this PR, for tax purposes, a partnership is not a chargeable person. Every partnership would be treated as if it is a sole proprietorship business. Income derived from the partnership is allocated to its partners based on the agreed profit sharing ratio, and taxed in the hands of the partners. The financial accounting period annually ending on 31 December is taken to be the basis period of a partnership.