BIR Ruling [DA-033-03]

February 5, 2003 BIR RULING [DA-033-03] 22 (B), 27, 196 DA-083-99, DA-119-2001, DA-067-2002 Casimiro Development Corporation Real Street, Zapote Las Pias City Attention: Mr. Teofilo P. Casimiro President Gentlemen : This refers to your letter dated February 1, 2002, the pertinent portion of which is quoted as follows: "Our company, Casimiro Development Corporation entered into a Joint Venture Agreement with Sonia Enriquez for the land and site development and construction of housing units to be known as Villa Feliza Homes located at Alabang-Zapote Road, Las Pias City. "Sonia Enriquez will contribute the parcel of Land situated at the above location with an area of Nine Thousand Two Hundred Ninety Four (9,294) square meters covered by TCT Nos. 39048, 39049, 39050, 39051, 39052, 39053, 39054, 39055 issued by the Registry of Deeds. Casimiro Development Corporation shall undertake at its own expense the land and site development and the construction of the housing units. "In return for our respective contributions to the Project, Casimiro Development Corporation and Sonia Enriquez will acquire each separate ownership of specific designated units as specified in the Agreement (these units will later be offered for sale)." 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 or 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. In view thereof, it is our opinion that the joint venture of Casimiro Development Corporation, as developer, and Sonia Enriquez, as lot owner, for the land and site development and construction of housing units to be known as Villa Feliza Homes is not subject to the corporate income tax under Section 27 of the Tax Code of 1997. However, the co-venturers are separately subject to the regular corporate/income tax on their taxable income during each taxable year respectively derived by them from the sale of their respective shares in the housing project. DTEIaC Considering the foregoing, the Joint Venture Agreement executed by Casimiro Development Corporation and Sonia Enriquez for the land and site development and construction of Villa Feliza Homes, and the allocation of their respective shares in the project will not give rise to a separate taxable joint venture within the meaning of Section 22(B), in relation to Section 27(A) of the Tax Code of 1997, and that the allocation between Casimiro Development Corporation and Sonia Enriquez of their respective shares in consideration of their contribution in the project, as stipulated in the Joint Venture Agreement, is not taxable event and is not subject to income/withholding tax because the allocation is a mere return of the capital that each has contributed to the Project. However, should Casimiro Development Corporation and Sonia Enriquez sell the shares allocated to them to third parties, the gain that may be realized by them from such sale effective January 1, 2000 will be subject to the regular income tax under the Tax Code of 1997, and to the creditable/expanded withholding tax (EWT) under Revenue Regulations No. 2-98, as amended (BIR Ruling No. 274-92 dated September 30, 1992; BIR Ruling No. UN-025-95 dated January 11, 1995; and BIR Ruling No. DA-488-98 dated November 16, 1998) , and necessarily, the said transaction shall be subject to the documentary stamp tax imposed under Section 196 of the same Code. This ruling is being issued based on 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. ( BIR Ruling No. 207-92 dated July 16, 1992; BIR Ruling No. 317-92 dated October 28, 1992 ). Very truly yours, Commissioner of Internal Revenue By: (SGD.) MILAGROS V. REGALADO Assistant Commissioner Legal Service