BIR Ruling [DA-167-00]

March 21, 2000 BIR RULING [DA-167-00] Pambansang Pangasiwaan ng Patubig (National Irrigation Administration) National Government Center E. de los Santos Avenue Quezon City Attention: Mr . Manuel S . Arevalo Administrator Gentlemen : This refers to your letter dated February 10, 1999 requesting for a certification that the joint venture agreement entered into by and between Kubota Corporation C. M. Pancho Construction, Inc. Joint Venture/Consortium to undertake a project for the Lower Agusan Development Component Project in the Province of Agusan del Norte under the National Irrigation Administration, is exempt from the 1% expanded withholding tax. In reply, please be informed that the said request was the subject of BIR Ruling No. DA-586-98 dated December 29, 1998 issued in favor of Kubota Corporation C. M. Pancho Construction, Inc. Joint Venture/Consortium with address at 71-A Scout Borromeo St., Diliman, Quezon City. We quote the dispositive portion of the said ruling, thus: "In reply, please be informed that pursuant to Section 22(B) of the Tax Code of 1997, the 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 Kubota Corporation C.M. Pancho Construction, Inc. Joint Venture/Consortium is exempt from income tax, pursuant to Sections 22(B) and 27, both of the Tax Code of 1997. For the same reason, gross payments to the joint venture/consortium from the National Irrigation Administration are not likewise subject to the expanded withholding tax prescribed under Section 57(B) of the Tax Code of 1997 . (Emphasis supplied) "However, each of the ventures is liable for the payment of the corporate income tax imposed under Sections 27 and 28 of the Tax Code of 1997, on their respective earnings derived from the above-mentioned construction project. (BIR Ruling No. 107-90 dated May 29, 1990). Moreover, Kubota Corporation obviously enjoying the status of a resident foreign corporation doing business in the Philippines, shall be similarly subject to the 35% corporate income tax on its taxable income derived from the same construction project pursuant to Section 28(A)(1) of the Tax Code of 1997: Provided, that effective January 1, 1999, the rate shall be 33% and effective January 1, 2000 and thereafter, the rate shall be 32%. (BIR Ruling No. 115-86) "Finally, as contractor, the Kubota Corporation C.M. Pancho Construction, Inc. Joint Venture/Consortium shall be subject to the 10% value-added tax pursuant to Section 108 (A) of the Tax Code of 1997. (BIR Ruling No. 274-92 dated September 30, 1992)" As correctly stated in the said ruling, gross payments to the joint venture/consortium from the National Irrigation Administration are not subject to the expanded withholding tax prescribed under Section 57(B) of the Tax Code of 1997. Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal and Enforcement Group)