BIR Ruling [DA-021-01]

February 16, 2001 BIR RULING [DA-021-01] 22 (B), 42 (C) (3), 108 (A) DA-586-98 ECCO-Asia/Nacap Joint Venture Rm. 1707A-East Tower Philippine Stock Exchange Center Exchange Road, Pasig City Attention: Mr . Anthony L . Fernandez Project Director Gentlemen : This refers to your letter dated May 3, 2000 stating that Engineering and Construction Corporation of Asia (ECCO-Asia), a local company engaged in the construction business, and Nacap Nederland b.v. (Nacap), a non-resident foreign corporation, have formed a joint venture solely for the purpose of implementing a project awarded by the National Power Corporation (NPC) for the construction of a natural gas pipeline also known as the "Ilijan Gas Pipeline Facility Project"; and that the joint venture is not registered with the Securities and Exchange Commission (SEC) but is a registered VAT entity. In connection therewith, you now request for a ruling on the following issues: "A. Taxability of the Joint Venture "1. That the JV is not subject to corporate tax since the JV does not fall within the definition of a corporation defined under Article 22(B) of the Tax Code. The co-venturers however will be liable to tax on their share on the profits derived from the project. "2. That since the JV is exempt from corporate tax, the payment of NPC to the JV shall not be subject to the 1% creditable expanded withholding tax under Section 2.57.2 (E) of Revenue Regulations No. 2-98. "3. That being exempt from corporate income tax, the JV is not required to file quarterly and final adjustment returns with the BIR." SEHTIc In reply, please be informed that: 1. 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 the joint venture or consortium formed by and between ECCO-Asia and Nacap for the purpose of undertaking geothermal construction projects as excluded from the aforequoted definition of taxable corporation, this Office is of the opinion as it hereby holds that the joint venture is not subject to the regular corporate income tax under Section 27(A) of the Tax Code of 1997. The co-venturers nonetheless are liable for the payment of the corporate income on their respective earnings derived from the above-mentioned construction project. 2. Since the joint venture is exempt from corporate income tax, the gross payments of NPC to the joint venture shall not be subject to the 1% creditable withholding tax under Section 2.57.2(E) of Revenue Reg ulations 2-9 8. 3. ECCO Asia/Nacap Joint Venture will only be required to file an annual information return in lieu of the quarterly and final corporate income tax returns, because under Sections 52(A) and 76 both of the Tax Code of 1997, only corporations subject to tax are required to file said returns. Moreover, as a public works contractor, the joint venture shall be subject to the 8.5% withholding on VAT under Section 111 (B)(2) of the Tax Code of 1997, creditable against the 10% value-added tax imposed upon it under Section 108(A) of the same Code. 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, and/or any of the requirements imposed in this letter are not complied with, then 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