BIR Ruling [DA-179-00]

March 27, 2000 BIR RULING [DA-179-00] Section 22 (B) 018-99 DA-179-2000 Ricardo O. Suba Certified Public Accountant Rm. 207, Reza Building 1318 Quezon Ave., Quezon City S i r : This refers to your letter dated December 27, 1999 stating that Ritenans Development Corporation (RIDECO) is not liable to pay income tax nor is it subject to the expanded withholding tax arising from the assignment of subdivision lots in favor of Fil-Estate Development Inc ., (FEDI) representing the latter's participating interest pursuant to a joint venture agreement that the said corporations have previously entered into. It is represented that RIDECO and FEDI have entered into a joint venture agreement which provides for the following: 1. Certain parcels of land owned by RIDECO shall be developed by FEDI into a first class subdivision; 2. The resulting saleable area of all lots in the developed subdivision shall be shared as follows: RIDECO shall retain 37% while FEDI will get 63%; 3. As soon as the lots to be assigned to FEDI are determined, RIDECO shall execute Deed of Assignment in favor of FEDI covering the said subdivisions lots. 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 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. Since the joint venture entered into by RIDECO and FEDI is for the purpose of undertaking a construction project which is that of developing certain parcels of land owned by RIDECO into a first class subdivision, it is our opinion that the said joint venture is not subject to the corporate income tax under Section 27(A) 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 aforesaid construction project. They are likewise separately subject to the value added tax imposed by Section 106 of the Tax Code of 1997 on the sale or disposition of their respective subdivision lots to third parties. Considering that it is only upon the sale or disposition of subdivision lots to third parties that the gain realized therefrom is subject to the regular 32% income tax for taxable year 2000 under Section 27(A) of the Tax Code of 1997 and to the creditable withholding tax under Revenue Regulations No. 6-85 as amended by Revenue Regulations No. 2-98 (BIR Ruling No. 018-99), the mere assignment of subdivision lots by RIDECO in favor of FEDI representing the latter's participating interest pursuant to the joint venture agreement entered into by the parties may not be considered a taxable event with the purview of Section 27(A) of said Code. In view of the foregoing, we confirm your opinion that RIDECO is not liable to pay income tax and or creditable withholding tax arising from the assignment of subdivision lots in favor of FEDI for the latter's allocable share in the joint venture agreement. 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)