BIR Ruling [DA-134-00]

March 2, 2000 BIR RULING [DA-134-00] 22 (B), 27 (A), 57 (B), 108 (A) DA-474-98 Advanced Foundation Construction Systems Corporation Rm. 103, Heart Tower Building 108 Valero Street, Salcedo Village Makati City Attention: Mr . . Mario G . Lualhati President Gentlemen : This refers to your letter dated September 20, 1999 stating that your company, Advanced Foundation Construction Systems Corporation and Allado Construction Company Inc., both classified by and registered with the Inter-Agency Committee Registration and Classifications of Contractors "Philippine Contractors Accreditation Board (PCAB) with Principal Accreditation and Category as Triple AAA" for general engineering decided to undertake a bridge project in Davao City on a joint venture capacity; that both construction company deals separately regarding their tax obligations; that the purpose of organizing the joint venture is to engage in the construction of Bolton Bridge for the Department of Public Works and Highways (DPWH); and that based on the foregoing, you now request for a ruling on the following: "Is the joint venture subject to 8.5% VAT (that will be withheld by the DPWH from all income payments to be made to the joint venture)? If yes, is the joint venture required to file its own VAT return, or can that be performed by one of the partners on behalf of the joint venture? "2 Is the joint venture subject to income tax? "3. Is the joint venture subject to 1% Expanded Withholding Tax (to be withheld by the DPWH from all income payments to be made to the joint venture)? "4. Should the joint venture have its own set of documents (i e, official receipts invoices, etc.) to be issued for the joint venture transactions? Is it possible that one of the partners be the one to issue the above mentioned documents on behalf of the joint venture? In reply, please be informed that pursuant to Section 22(B) of the Tax Code of 1997, 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 of the foregoing, the joint venture of Advanced Foundation Construction Systems Corporation and Allado Construction Company Inc. is not subject to the corporate income tax under Section 27 of the Tax Code of 1997. Consequently, gross payments received by said joint venture is not subject to the 1% creditable expanded withholding tax prescribed under Section 57(B) of the same Tax Code. However, the co-venturers, Advanced Foundation Construction Systems Corporation and Allado Construction Company Inc., are separately subject to the corporate income tax on their respective taxable income during each taxable year derived by them from the aforesaid construction project. Thus, they are separately subject to the 33% corporate income tax effective January 1, 1999 and 32% effective January 1, 2000 and thereafter imposed under Section 27(A) of the Tax Code of 1997. Moreover, as a contractor, the joint venture shall be subject to the 10% VAT under Section 108(A) of the Tax Code of 1997. Since each co-venturer has a personality separate and distinct from the joint-venture, a co-venturer should not use its own document for and in behalf of the joint venture. 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.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal and Enforcement Group)