BIR Ruling [DA-027-02]

February 26, 2002 BIR RULING [DA-027-02] Rafeli Realty and Development Corporation Unit D, Giselle's Park Plaza 302-320 EDSA cor. Taft Avenue Pasay City Attention: Romulo F. Almonidovar President Gentlemen : This refers to your letter dated November 29, 2001 requesting for a definitive ruling on the tax consequences of the Joint Venture Agreement entered into by and between Spouses Dandan and Lucina M. Pagsisihan herein referred to as the Owner, and Rafeli Realty & Development Corporation herein referred to as Developer. It is represented that the Developer is engaged in real estate business with expertise in the construction and development of real estate projects. The Owner is the registered owner of parcels of land located at Wawa, Brgy. La Huerta, Paraaque City, covered by TCT No. S-213-26 of the Register of Deeds of Pasig City with an area of Three Thousand Five Hundred Sixty (3,560) square meters and TCT Nos. 258828 and 313872 with an area of Five Thousand Two Hundred Sixty (5,260) square meters and Seven Hundred (700) square meters respectively. On March 8, 1993, the owner and the developer executed a Joint Venture Agreement for the development of the aforementioned real properties. Under the said Agreement, the Owner shall contribute real properties and the developer shall develop, at its own expense, the parcels of land of the Owner. Upon completion of the project, the parties shall divide the developed and saleable lots, as follows: 55% for the Owner and 45% for the Developer. By virtue of this transaction, you now request for a ruling focused following issues, to wit: 1. Whether or not the joint venture agreement for the development of the Owner's parcels of land is taxable within the meaning of Section 22 (B), in relation to Section 27 (A) of the Tax Code of 1997; income tax, withholding tax, Value-added tax and documentary stamp tax because the allocation is a mere return of capital contribution. Nonetheless, the acknowledgment to the Deed is Subject to documentary stamp tax under Section 188 of the Tax Code of 1997. On the other hand, upon the subsequent disposition of the lots allocated to the members of the joint venture, the gain that may be realized from such sale will be subject to the regular income tax under Section 27(A) of the Tax Code of 1997, to the creditable withholding tax under Revenue Regulations No. 2-98, to the value-added tax under Section 106 and the documentary stamp tax imposed under Section 196, all 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, then this ruling shall be considered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) MILAGROS V. REGALADO Acting Assistant Commissioner Legal Service