BIR Ruling [DA-041-04]

February 4, 2004 BIR RULING [DA-041-04] 114 (A) & (B) BIR Ruling Nos. 335-88; 133-89 Siguion Reyna Montecillo & Ongsiako 8755 Paseo de Roxas, Philcom Building Makati City Attention: Atty. Catherina M. Fernandez and Atty. Jose Lis C. Leagogo Gentlemen : This refers to your letter dated September 21, 1998 requesting for a ruling in behalf of your client DS Realty Inc. (DSRI) to the effect that it is no longer required to file a VAT return nor remit payments to the BIR considering that the VAT due on its share in the proceeds of the sale of the cemetery lots has been paid by the Manila Memorial Park Cemetery, Inc. (MMPCI). It is represented that DSRI, a corporation duly established in accordance with Philippine laws, owns several parcels of land located in Dasmarias, Cavite; that on May 18, 1993, MMPCI has undertaken the development of lots owned by DSRI into a memorial park for sale to the general public; that under the Agreement, as amended, title to the lots remained with DSRI; that MMPCI will shoulder all costs of developing the land into saleable cemetery lots; that however, while DSRI will share in the proceeds of the sale, it will not participate in any loss arising from the transaction; that MMPCI and DSRI will share in the net proceeds of the sale on a 75%-25% ratio, with 75% for MMPCI and 25% for DSRI; that since DSRI retained ownership of the lots, DSRI executed a Special Power of Attorney constituting MMPCI as its Attorney-in-Fact in the sale of the cemetery lots that all contracts of sale of the cemetery lots were executed by MMPCI and DSRI as sellers, with MMPCI signing in its own behalf and as attorney-in-fact of DSRI; that all the contracts for the sale of the subject cemetery lots are being executed by MMPCI; that for VAT purposes, MMPCI reports the total amount realized from the sale of said cemetery lots without distinction as to the sharing between the parties; that MMPCI files a quarterly VAT return reporting the total amount of sales made and remits monthly VAT payments to the BIR on the basis of total gross sales realized as stated in the contracts of sale covering the cemetery lots; that MMPCI, in effect, pays for the VAT due on its own sales as well as on the sales corresponding to the share of DSRI; and that because MMPCI already pays and remits to the BIR the VAT which DSRI should be paying, DSRI no longer files a VAT return nor pays the VAT due on its share in the sales of the cemetery lots in order to avoid double payment. In reply, please be informed that pursuant to Section 114(A) and (B) of the Tax Code of 1997, every person liable to pay the value-added tax shall file a quarterly return of the amount of his gross sales or receipts within twenty-five (25) days following the close of each taxable quarter prescribed for each taxpayer: Provided, however, That VAT-registered persons shall pay the value-added tax on a monthly basis, with the authorized agent bank, Revenue Collection Officer or duly authorized City or Municipal Treasurer within the revenue district where the taxpayer is registered or required to register. Moreover, contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order or public policy. (Article 1306 of the Civil Code of the Philippines) Considering that MMPCI and DSRI will receive their share in the net proceeds of the sale equivalent to 75% and 25% thereof, a joint venture has been established between MMPCI and DSRI. Thus, the amount received by one partner-venturer from the other is not subject to VAT. However, the income tax exemption of the joint venture formed for the purpose of undertaking construction project pursuant to Section 22(B) of the Tax Code cannot extend to cover VAT. IaEScC Please be informed further that VAT is imposed on the gross receipts of the joint venture which is the entity that entered into the sale transaction and not on the respective gross receipts of the partner-venturers. Since a joint venture is considered as a person constituting a separate tax entity pursuant to Section 2(c) of Revenue Regulations No. 5-87, it should be registered for VAT purposes under the VAT law. (BIR Ruling Nos. 335-88; 133-89) If MMPCI undertakes to pay the VAT, then it should prepare separate returns, one for DSRI and one for itself. Although the present arrangement may be convenient for both parties, still, DSRI remains a non-filer insofar as VAT is concerned and such omission will subject DSRI to the penalties under Revenue Memorandum Order No. 1-90. 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.) JOSE MARIO C. BUAG Deputy Commissioner Legal and Inspection Group