BIR Ruling [DA-119-01]

July 10, 2001 BIR RULING [DA-119-01] 22 (B), 27, 196 DA-083-99 Mr . Rolando A . Noriega No. 20 Velante Drive Cubao, Quezon City S i r : This refers to your letter dated December 5, 2000, the contents of which is quoted as follows: "The undersigned, Rolando A. Noriega, as owner of a parcel of land situated at Eisenhower St., Greenhills, San Juan, Metro Manila, containing an area of approximately 1,000 square meters, more or less, and covered by Transfer Certificate of Title No. 41813 of the Registry of Pasig, Metro Manila, and Arpen Real Estate Development, Inc. as developer, a corporation duly organized and existing under and by virtue of the laws of the Philippines, with business address at Rm. 206 Quadstar Building, Ortigas Avenue, Greenhills, San Juan, Metro Manila, duly represented by its President, Joselito L. Santos, have entered into a joint agreement sometime in March 30, 1995, whereby they expressly stipulated that the owner of the aforementioned lot shall deliver the possession and occupancy thereof and shall convey to the developer the said lot where the latter will construct the condominium building, with all expenses to be shouldered by the developer. After the building is completed, ownership of certain condominium and parking units will be apportioned to them as their share in such joint venture undertaking. Copy of said joint venture agreement entitled "Memorandum of Agreement" is hereto attached for your ready reference and guidance and made an integral part of this request. "From the aforementioned agreement, it is reflected that the parties: Rolando A. Noriega, lot owner, and Arpen Real Estate Development, Inc., developer, have pooled their respective resources to put up a condominium project and after its completion, the lot owner is entitled as its share, 2,000 square meters of built/finished gross floor area, including parking spaces to be selected by the lot owner from any/or all floors of the condominium building except the Ground Floor and Penthouse. After the signing of the Memorandum of Agreement by the parties concerned, the title of the said lot was transferred in the name of Arpen Real Estate Development, Inc. under TCT No. 7298-B in consonance with the tenor of the said agreement. As a result, after the completion of the condominium project known as Le Gran Condominium, the Condominium Certificates of Title of all the condominium and parkings units were issued in the name of the developer, Arpen Real Estate Development, Inc. The following condominium and parking units were assigned to the undersigned as owner of the land where the condominium was constructed pursuant to the Memorandum of Agreement namely: EAcCHI CCT Nos. Floor Unit Nos. Area(sq.m.) 1. 6401-R 14th 1410 35.44 2. 6445-R 17th 1708 29.70 3. 6446-R 17th 1709 29.70 4. 6448-R 17th 1711 49.95 5. 6460-R 18th 1808 29.70 6. 6461-R 18th 1809 29.70 7. 6465-R 19th 1901 35.44 8. 6466-R 19th 1902 29.70 9. 6467-R 19th 1903 29.70 10. 6468-R 19th 1904 29.70 11. 6469-R 19th 1905 30.61 12. 6470-R 19th 1906 30.61 13. 6471-R 19th 1907 29.70 14. 6472-R 19th 1908 29.70 15. 6473-R 19th 1909 29.70 16. 6474-R 19th 1910 35.44 17. 6475-R 19th 1911 49.95 18. 6476-R 19th 1912 29.70 19. 6477-R 19th 1913 48.34 20. 6478-R 19th 1914 48.34 21. 6479-R 19th 1915 29.70 22. 6480-R 19th 1916 49.95 23. 6481-R 20th 2001 35.44 24. 6482-R 20th 2002 29.70 25. 6483-R 20th 2003 29.70 26. 6484-R 20th 2004 29.70 27. 6485-R 20th 2005 30.61 28. 6488-R 20th 2008 29.70 29. 6489-R 20th 2009 29.70 30. 6490-R 20th 2010 35.44 31. 6492-R 20th 2012 29.70 32. 6493-R 20th 2013 48.34 33. 6494-R 20th 2014 48.34 35. 6495-R 20th 2015 29.70 36. 6496-R 20th 2016 49.95 37. 6619-R Basement 2 slot 213 area-12.50 sq.m. 38. 6620-R Basement 2 slot 214 area-12.50 sq.m. 39. 6621-R Basement 2 slot 215 area-12.50 sq.m. 40. 6622-R Basement 2 slot 216 area-12.50 sq.m. "Based on the foregoing, the undersigned would like to request for a ruling that the assignment/transfer by Arpen Real Estate Development, Inc. to the undersigned be exempt from whatever taxes considering that the original registration of the respective commercial/residential units and parking spaces in his name do not yet involve any transfer to third persons or the public. Moreover, aforesaid ruling is necessary for the issuance of the Certificate Authorizing Registration in favor of the undersigned as required by the Register of Deeds." that based on the letter of Arpen Real Estate Development, Inc. dated July 30, 1995 addressed to you, the floor area of the condominium and parking units assigned to you is in proportion to the value of your lot at the time of the construction of the condominium project; that we quote the pertinent portion of the said letter thus: "This is to confirm our basic understanding regarding your 1,000 square meter property covered by TCT no. 41813, located in the Municipality of San Juan, Metro Manila that are as follows: "1. That you will transfer the above mentioned property to a condominium corporation to be organized for the purpose of the conceived condominium project; "2. In exchange for the transfer of the said 1,000 square meter land property, Arpen Real Estate Development Corporation as developer shall transfer several condominium units to your name; "3. That for the purpose of recording this transaction wherein you shall transfer to the project the land mentioned above, we intend to make reference to an appraisal report which was presented during our negotiation. The reported appraisal value is P20,000.00 per square meters which win total P20 million for the 1,000 square meter land; "4. The budgetary cost to construct the condominium building based on engineering studies is estimated at P14,500.00 per square meter. To determine the approximate area to be transferred to you, we have to divide the P20 million value by the construction cost per square meter of P14,500.00, resulting to an area of 1,379.31 square meters; "5. Upon completion of the building we shall segregate as the developer of the condominium project certain number of condominium units chosen by you with an aggregate floor area that is very near the 1,379.31 square meters determined earlier." and that in support of your request, you submitted to this Office the following documents, viz: 1. Memorandum of Agreement; 2. Deed of Conveyance; 3. Deeds of Assignment; 4. Letter of Arpen Real Estate Development, Inc. dated July 30, 1995; 5. Appraisal of Property by General Appraisal Company; 6. Transfer Certificates of Title; and 7. Condominium Certificates of Title. 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 Arpen Real Estate Development, Inc., as developer, and Rolando A. Noriega, as lot owner, for the construction of the "Le Gran Condominium" 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 condominium. DHEACI Considering the foregoing, the Memorandum of Agreement executed by Arpen Real Estate Development, Inc. and Rolando A. Noriega for the construction and development of the Le Gran Condominium, and the allocation of their specific floors or units therein and parking slots 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 Arpen Real Estate Development, Inc. and Rolando A. Noriega of the floors or units therein and parking slots in consideration of their contribution in the project, as stipulated in the Memorandum of 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 Arpen Real Estate Development, Inc. and Rolando A. Noriega sell any of the floors or portions of the floors 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). CTDacA Very truly yours, Commissioner of Internal Revenue By: (SGD.) EDMUNDO P. GUEVARA Deputy Commissioner Legal and Inspection Group