BIR Ruling [DA-015-01]

February 12, 2001 BIR RULING [DA-015-01] 22 (B), 27, 28, 108 (A) DA-586-98 J . H . Pajara Construction Corp . / William Uy Construction Corp./ R . D . Interior Junior Constructional-Joint Venture 6th Floor, Strata 100 Building Emerald Avenue Pasig City Attention: Mr . Jaime H . Pajara Joint Venture Manager Gentlemen : This refers to your letter dated August 4, 2000 requesting for a ruling that a joint venture undertaking the construction of a government project is exempt from the payment of the 1% expanded withholding tax. It is represented that the joint venture of J.H. Pajara Construction Corporation/William Uy Construction Corp./R.D. Interior Junior Construction have completed its contract with the Department of Public Works and Highways (DPWH) for the construction of the approach, viaduct and road of the 2nd Mactan-Mandaue Bridge; that the joint venture has a balance collectible from DPWH for the said contract; and that you failed to apply with our Office for exemption from the 1% expanded withholding tax as prescribed Section 57(B) of the Tax Code of 1997 at the start of the joint venture. In reply, please be informed that pursuant to Section 22(B) of the Tax Code of 1997, the term "corporation" shall include partnerships, no matter how created or organized, joint-stock companies, joint accounts ( cuentas en participacion ), associations or insurance companies, but does not include general professional partnerships and a joint venture or consortium formed for the purpose of undertaking construction projects or engaging in petroleum, coal, geothermal and other energy operations pursuant to an operating or consortium agreement under a service contract with the Government. Such being the case, the Joint Venture of J.H. Pajara Construction Corporation/William Uy Construction Corporation/R.D. Interior Junior Construction is not subject to the corporate income tax under Sections 27 of the Tax Code of 1997. Consequently, gross payments received by said joint venture is not subject to the 1% expanded withholding tax prescribed under Section 57(B) of the Tax Code of 1997 and implemented by Revenue Regulations No. 6-85, as amended by Revenue Regulations No. 2-98. However, the co-venturers of J.H. Pajara Construction Corporation, William Uy Construction Corporation and R.D. Interior Junior Construction are separately subject to the 32% corporate income tax imposed under Section 27(A) of the Tax Code of 1997 effective January 1, 2000 on their taxable income derived from the aforesaid project. DTAHSI Moreover, as a public works contractor, the joint venture shall be subject to the 8.5% withholding on VAT creditable against the 10% value-added tax under Section 108(A) of the Tax Code of 1997. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, this ruling shall be considered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) LILIAN B. HEFTI Deputy Commissioner Legal and Inspection Group