BIR Ruling [DA-030-01]

March 9, 2001 BIR RULING [DA-030-01] 27 (A), 57 (B), 108 (A) 057-96 Uy Pajara-PNCC Consortium 74 (4th Floor) Robert St., corner F. B. Harrison St. Pasay City Attention: Mr . Robert L . Wong General Manager Gentlemen : This refers to your letter dated August 18, 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 Consortium of William Uy Construction Corporation/J. H. Pajara Construction Corporation/Philippine National Construction Corporation, a joint venture duly organized and existing according to law with office address at 74 (4th Floor) Robert St., corner F. B. Harrison St., Pasay City, have entered into a Consortium Agreement dated August 17, 1998 for the purpose of constructing the EDSA-Quezon Boulevard Interchange Project; and that the Joint Venture was awarded the contract on November 5, 1999 and was given the notice to proceed with the construction work starting December 18, 2000. 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 of 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 Consortium of William Uy Construction Corporation/J. H. Pajara Construction Corporation/Philippine National Construction Corporation is not subject to the corporate income tax under Section 97 of the Tax Code of 1997. Consequently, gross payments received by said joint venture is not subject to the 1% expanded withholding tax prescribed by 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 William Uy Construction Corporation, J.H. Pajara Construction Corporation and Philippine National Construction Corporation 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. Moreover, as a public works contractor, the joint venture shall be subject to the 3.5% withholding on VAT creditable against the 10% value-added tax imposed under Section 108(A) of the Tax Code of 1997. HAICcD 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