BIR Ruling [DA-017-00]

January 7, 2000 BIR RULING [DA-017-00] Swire Land Corporation Swire Corporate Center #14 N. Domingo Street Quezon City Attention: Mr . Jaime V . Guerrero. Jr . President Gentlemen : This refers to your letter dated November 6, 1998 requesting for a ruling, on the tax implications of your joint venture undertaking to develop a subdivision project on the parcels of land owned by Reynaldo G. Syjuco, married to Evangeline Ipapo; Elizabeth G. Syjuco, married to Lawrence Qua; Sylvia G. Syjuco; Robert G. Syjuco; Antonio J. Montinola, married to Asuncion Sala; Isabelita J. Montinola; Luis J. Montinola; and Ester M. Cumagun, married to Antonio G. Cumagun and N Builders. Inc. (Owner). It is represented that you are a domestic corporation duly registered with the Securities and Exchange Commission (SEC); that you entered into a Joint Venture Agreement with the Owner for the development of the Victorian Heights Subdivision Project, which properties are covered by TCT Nos. RT-90426(287396), 106087, 115149 and 116022 situated at Fairview, Quezon City; that in the joint venture agreement you undertake, among other things, to develop the properties into a residential subdivision project and to promote, market and sell the disposable lots in the project; that the Owner shall be entitled to 55% of the total disposable areas and the developer shall be entitled to the remaining 45% of the project; that the Joint Venture Agreement you entered into as developer with the Owner for the construction of a subdivision project, will not create a separate taxable joint venture within the meaning of Section 22(B) In relation to Section 27(A) of the Tax Code of 1997. In connection therewith, you are requesting for a ruling to the effect that the allocation of the units and the issuance of the corresponding Transfer Certificate of Title by the Registry of Deeds of Quezon City in your name and the Owner, representing your share and the shares of the Owner are not subject to capital gains tax and documentary stamp tax.. In reply, please be informed that pursuant to Section 22(B) of the Tax Code of 1997, the term corporation includes partnership, 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. Considering that it is the intention of the legislature to exclude joint venture or consortium formed for the purpose of undertaking construction projects from the definition of taxable corporation, this Office is of the opinion as it hereby holds that the Joint Venture Agreement executed by and between you and the Owner is not subject to the regular income tax under Section 27(A) of the Tax Code of 1997. The allocation or saleable lots between you and the Owner, as stipulated in the Joint Venture Agreement is not a taxable event and is not subject to income tax or the creditable withholding tax because the allocation is a mere return of capital that you and the Owner have contributed. However, upon the subsequent disposition by the co-venturers of the lots allocated to them, the gain that may be realized by them from such sale shall be subject to the regular income tax under Section 24(A) or Section 27(A), both of the Tax Code of 1997 and to the creditable withholding tax under Revenue Regulations No. 2-98. (BIR Ruling No. DA 286-98 dated June 29, 1998) The said sale shall likewise be subject to the documentary stamp tax imposed under Sec. 196 of the Tax Code of 1997. LexLib This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation it shall be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner Legal and Enforcement Group