Article 36: General Provisions

(a)    Taxes shall be imposed on partners in partnerships and not on the company itself. However, the company is required to file a tax declaration for the purpose of information showing the amount of income, profit, loss, expenses, debts, and other items or tax related matters of the partnership for the taxable year.  The declaration shall be subject to procedural rules, including fines imposed on tax declarations in accordance with this Law.

(b)    The partnership, rather than its partners, shall be responsible for choosing the taxable year, the accounting method, the inventory method and any other accounting policies consistent with this Law. It shall also be responsible for filing notifications and statements required in relation to its types of activity.

(c)    The provisions of this Law concerning capital companies shall apply to shares of limited partners in limited partnerships.

Article 37: Taxation on Partners

(a)    In determining the tax base of a partner, income, deductions, losses, and debt derived or accrued against the partnership retain their status as to geographic source and type of income, gains, deductions, losses, and debt.

(b)    A partner’s share in a partnership’s income, loss, expenses, and debt shall be taken into account for the purpose of determining the tax base of the partner’s taxable year in which the partnership’s taxable year ends. The partner’s loss which exceeds his cost base is suspended until the partner acquires sufficient cost base to offset the loss or until the partner’s share is disposed of.

(c)    The loss of the related party disallowance rule stated in paragraph (d) of Article Sixty Three of this Law shall not be applicable to the partner’s share of losses and expenses in a partnership in accordance with paragraph (b) of this Article. A partnership’s loss suspended according to paragraph (d) of Article Sixty Three shall not be distributed among the partners until its conditions are fulfilled. The conditions shall be considered fulfilled in case a loss is incurred in distribution upon complete disposal of the partner’s share.

Article 38: Cost Base of the Partner's Share

(a)    The cost base of a partner's share in a partnership shall be determined by the amount the partner pays against his share plus the cost base of properties he contributed to the company.

(b)    The cost base increases by the amount of a partner’s share in a partnership’s income (along with his exempt income) included in the partner's gross income.

(c)    The cost base decreases, but not below zero, by the cost of distributions from the partnership to the partner and by the partner’s share of partnership losses, and expenses as well as nondeductible expenses of the partnership, except for capital items.

(d)    Debt incurred by the partnership, including the debt against its properties, increases each partner’s cost base according to his share in the partnership. However, debt incurred by some partners in the partnership, in their personal status, shall increase the cost base for these partners only.

Article 39: Cost Base of Partnership’s Assets

(a)   The initial cost base of properties contributed to a partnership shall be equal to the cost base of the contributing partner.

(b)   If a partner retires from a partnership and receives a distribution causing him to make profit by disposing of his share in the partnership, the cost base of the partnership’s profiting assets shall be adjusted by increasing the amount of profit made, provided that the value of such assets does not exceed their market value. Cost base adjustments are distributed among assets according to the percentage difference between the cost base and the market value.

(c)    If a partner retires from a partnership and receives a distribution causing him to incur a loss by disposing of his share in the partnership, the cost base of the partnership’s losing assets shall be adjusted by reducing the value of the loss incurred, provided that the cost base of such assets is not less than zero. Cost base adjustments are distributed among assets in accordance with the  percentage difference between the cost base and the market value.

(d)   For purposes of paragraphs (b) and (c) of this Article, a profiting asset is the asset that has a cost base lower than the market value and a losing asset is the asset that has a cost base higher than the market value.

Article 40: Transfer of Property to a Partnership

(a)    No gain or loss shall be calculated for a transfer of a partner’s asset to a partnership against acquiring a share in such partnership.

(b)    The partner is considered an owner of a share in the partnership equal to the difference between the value of the asset transferred by him to the partnership according to market prices and the amount paid to him. If the amount paid to him exceeds the market price, the excess amount shall be considered as distribution to the partner by the partnership.

Article 41: Transfer of Asset Ownership from a Partnership to a Partner

(a)    A partnership’s transfer of a non-cash asset to a partner therein, including liquidation of the partner’s share, is treated as a disposal of the asset by the partnership, with declaration of gain or loss on the transfer date.

(b)    A partner shall take the cost base of the asset which equals the market value of the asset.

(c)    A partner is deemed to have received a distribution of profit from the partnership with a value equal to the market price for the ownership of the asset transferred to him without paying its cost. The partner is treated as having disposed of part or all of his share in the partnership, if  the estimated distribution exceeds the partner’s cost base in the partnership. If the distribution is a complete disposal of a partner’s share, and is less than the partner’s cost base, the difference between the cost base and distribution may be deducted on the basis that it is a loss resulting from his disposal of his share.

Article 42: Change of Partners in a Partnership

(a)    If a partner or partners enter into or retire from a partnership which results into its reconstitution, all its assets shall be considered transferred to the new partnership against shares in this partnership.

(b)    A reconstitution of a partnership occurs when the entry or retirement of a partner or partners results in a change in the partnership’s membership exceeding fifty percent (50%) of its formation in the year preceding the change.