MDC-FB Joint Venture

February 5, 2007 BIR RULING [DA-058-07] Secs. 22 (B) & 27 (A); DA-293-2003 dtd 09/03/03 MDC-FB Joint Venture 10th Floor Ayala Life-FGU Centre Madrigal Business Park, Alabang Zapote Road Corner Acacia Ave., Ayala Alabang Muntinlupa City Attention: Anthony L. Fernandez Member-Joint Venture Board Gentlemen : This refers to your letter dated January 29, 2007, requesting a clarificatory ruling on the tax consequence of the Joint Venture Agreement between Makati Development Corporation (MDC) and First Balfour, Inc. (FB) which is tasked to undertake the construction of the St. Lukes Medical Center-Fort Bonifacio Global City Project, to wit; 1. Whether or not the Joint Venture is subject to the corporate income tax; 2. Whether or not the Joint Venture is subject to the creditable expanded withholding under Revenue Regulations No. 2-98; 3. Whether or not the joint venture is required to file quarterly and final adjustment return with BIR: Documents submitted disclosed that Makati Development Corporation (MDC), a corporation duly organized under Philippine laws with principal office at 10/F Ayala Life-FGU Center, Alabang-Zapote Road, Madrigal Business Park, Ayala Alabang, entered into a Joint Venture Agreement (JVA), with First Balfour, Inc. (FB), likewise a domestic corporation with office address at 5th Flr. Benpres Bldg. Ortigas, Pasig City; that under the JVA, MDC and FB agreed that they will jointly participate in the construction of the St. Luke's Medical Center-Fort Bonifacio Global City Project, under the terms and conditions embodied in their Joint Venture Agreements executed on January 12, 2005 at Pasig City, (Annex "A") and their Memorandum of Agreement executed on June 8, 2006, Pasig City (hereto attached as Annexes "A" and "B" respectively). In reply, please be informed as follows: 1) 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 for the purpose of undertaking construction project 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 joint venture formed as a result of the JVA by and between MDC and FB for the construction of the St. Luke's Medical Center-Fort Bonifacio Global City Project is not subject to the corporate income tax under Section 27 (A) of the Tax Code of 1997. In view thereof, it is our opinion that the joint venture is exempt from income tax pursuant to Sections 22(B) and 27(A), both of the Tax Code of 1997. However, the co-ventures are separately subject to the regular corporate income tax imposed under Section 27 (A) of the Tax Code of 1997, on their taxable income during each taxable year respectively derived by them from the aforesaid construction project. 2) For the same reason in #1, gross payments to the joint venture are not likewise subject to the 2% withholding tax prescribed under Section 57 (B) of the same Code, as implemented by Revenue Regulations No. 2-98, as amended by Revenue Regulations Nos. 6-2000 and 12-2000. 3) The joint venture being exempt from corporate income tax is not required to file quarterly and final or adjusted returns. In addition to the foregoing, the MDC-FB Joint Venture is subject to the 12% value added tax as contractor pursuant to Section 108 (A) of the Tax Code of 1997. DHSACT 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, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service