BIR Ruling [DA-187-99]

March 25, 1999 BIR RULING [DA-187-99] Ong, Ordoez & Associates 9624 Pililia Street Makati City Attention: Ms . Melanie Batac Gentlemen : This refers to your letter dated November 26, 1998 requesting for a ruling on the contemplated joint venture of your client, Gold Triangle Properties, Inc. and Sta. Lucia Realty and Development Corporation. prLL It is represented that Gold Triangle Properties, Inc. is the owner of eight (8) parcels of land covered by Transfer Certificates of Title Nos. 645744, 645745, 645746, 645747, 645748, 645749, 645750 and 645751 of the Registry of Deeds of Rizal; that Gold Triangle Properties, Inc. is contemplating on entering into a joint venture agreement with Sta. Lucia Realty and Development Corporation to develop the said parcels of land into a subdivision; and that the salient features stipulated on the agreement includes the following: "1. The developer will shoulder the cost to develop the land. "2. Title of the properties will remain in the name of the landowner with the joint venture agreement annotated on the titles. "3. Both parties agree to share in the proceeds of the sale. "4. Both parties shall at all times maintain separate ownership of their individual resources and properties contributed in undertaking the said project. "5. Both parties shall keep and maintain separate books of account for each party to monitor their cost and expenses in the project." 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 participation), 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. Thus, it is our opinion that the contemplated joint venture of Gold Triangle Properties, Inc. and Sta. Lucia Realty and Development Corporation 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 aforesaid construction project. Considering the foregoing, the Joint Venture Agreement to be executed by Gold Triangle Properties, Inc. and Sta. Lucia Realty and Development Corporation for the construction and development of the project, and the allocation of their respective share 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 Gold Triangle Properties, Inc. and Sta. Lucia Realty and Development Corporation in consideration of their contribution in the project, as stipulated in the Joint Venture Agreement, is not a taxable event and is not subject to income/expanded withholding tax, because the allocation is a mere return of the capital that each lists has contributed to the project. However, should Gold Triangle Properties, Inc. and Sta. Lucia Realty and Development Corporation sell any of their shares allocated to them to third parties, the gain that may be realized by Gold Triangle Properties, Inc. and Sta. Lucia Realty and Development Corporation from such sale will be subject to the regular corporate income tax under Section 27(A) of the Tax Code of 1997, and to the creditable/expanded withholding tax under Revenue Regulations 2-98. (BIR Rulings No. 274-992 dated September 30, 1992 and UN-025-95 dated January 11, 1995) The said transaction shall also be subject to the documentary stamp tax imposed under Section 196 of the Tax Code of 1997 based on the consideration or the fair market value of the property, whichever is higher. Moreover, Section 185 of the Revised Documentary Stamp Tax Regulations (Regulations No. 26) provides that "conveyances of realty not in connection with a sale, to trustees or other persons without consideration are not taxable." Accordingly, since the aforementioned Joint Venture Agreement is without consideration and is not in connection with a sale made to Gold Triangle Properties, Inc. and Sta. Lucia Realty and Development Corporation, no income was generated and a fortiori, no creditable/expanded withholding and documentary stamp taxes are payable and collectible. However, the acknowledgments to said Joint Venture Agreement is subject to the documentary stamp tax of P15.00 each pursuant to Section 188 of the Tax Code of 1997. (BIR Ruling No. 207-92 dated July 16, 1992, 349-93 dated July 30, 1993 and UN-025-95 dated January 11, 1995) In view thereof, since the Partition Agreement to be executed by Gold Triangle Properties, Inc. and Sta. Lucia Realty and Development Corporation, whereby they allocate unto each other their respective shares in the project, in consideration of their respective contributions in the project is without monetary consideration, the same will not be subject to income, creditable/expanded withholding and documentary stamp taxes under Section 196 of the Tax Code of 1997 (BIR Ruling No. 207-92 dated July 16, 1992, 349-93 dated July 30, 1993 and UN-025-95 dated January 11, 1995) but only to the P15.00 documentary stamp tax imposed under Section 188 of the same Code. LexLib 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)