BIR Ruling [DA-064-96]

February 5, 1996 BIR RULING [DA-064-96] Toledo/Consuelo Joint Venture 83 Del Monte Avenue, Quezon City Attention: Mr . Arnulfo P . Jacobe Authorized Managing Officer Gentlemen : This refers to your letter dated October 26, 1995, in effect, requesting for a ruling on the tax consequences of a joint venture formed exclusively to undertake construction projects. cdtech It appears that Toledo Construction Corporation and Consuelo Builders Corporation, both domestic corporations and 100% Filipino owned, have entered into a joint venture agreement for the purpose of pooling their resources together (i.e. equipment, services, skill, knowledge, etc.) under a joint proprietary interest and right of mutual control over the subject matter of the enterprise with the end in view of dividing the profits, if any, among themselves; that the joint venture is duly registered with the Department of Trade and Industry and the Bureau of Internal Revenue as a VAT taxpayer; and that a separate set of Books of Accounts are being maintained by the said joint venture. In reply, please be informed that pursuant to Section 20(b) of the Tax Code, as amended, the term corporation includes 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 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 is not subject to the corporate income tax under Section 24 of the Tax Code, as amended. Consequently, gross payments received by said joint venture is not subject to the 1% expanded withholding prescribed by Section 50(b) of the Tax Code, as amended and implemented by Revenue Regulations No. 6-85 as amended. However, the co-venturers are separately subject to the corporate income tax on their taxable income during each taxable year respectively derived by them from their construction project. Both Toledo Construction Corporation and Consuelo Builders Corporation are subject to the 35% corporate income tax based on its taxable income from all sources pursuant to Section 24(a) of the Tax Code, as amended. Moreover, as contractor, the joint venture shall be subject to the 10% value added tax pursuant to Section 102(a) of the Tax Code, as amended by Executive Order No. 273. Furthermore, inasmuch as the joint venture is not considered as a corporation pursuant to Section 20(b) of the Tax Code, as amended, Section 68 (Declaration of Corporate Quarterly Income Tax) and Section 69 (Final Adjustment Return) of the same Code does not apply to them. 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. (BIR Ruling No. 274-92 dated September 30, 1992) cdt Very truly yours, ALICIA P. CLEMENO Assistant Commissioner Legal Service By: ALICIA L. TOMACRUZ Head Revenue Executive Assistant (Legal Service)