BIR Ruling [DA-219-02]

November 22, 2002 BIR RULING [DA-219-02] 22 (B), 27, 196 DA-083-99, DA-440-2000 Atlanta Land Corporation Goldhill Tower No. 5 Annapolis St., Greenhills San Juan, Metro Manila Attention: Atty. Emilio Baligod Corporate Counsel Gentlemen : This refers to your letter dated March 21, 2001, the pertinent portion of which is quoted as follows: "This has reference to a Joint Venture Agreement entered into by and among Atlanta Land Corporation (ALC) and One Asia Development Corporation (OADC). Pursuant to the said agreement, the parties hereby agree to jointly develop 4 parcels of land located in Paraaque, Metro Manila . . . For the development of said parcels of land, the parties agree to pool their resources and contribute as follows: COMPANY CONTRIBUTION Atlanta Land Corporation As landowner; parcels of land constituting an aggregate area of approximately 33,875 Square Meters. One Asia Development Corp. As developer of the project, to infuse any and all working capital requirements for the development of the parcels of land. From the foregoing contributions, OADC undertakes to construct and develop a controlled and integrated residential community composed of residential house and lot units, access roads, internal roads, open spaces and other amenities in accordance with a site development plan to be prepared by OADC. From the completed project, ALC will receive forty-eight (48) appurtenant single attached saleable housing units. . ." and that perusal of the Joint Venture Agreement revealed that the four (4) parcels of land situated at Multinational Village, Paraaque, Metro Manila are registered in the name of Atlanta Land Corporation and covered by Transfer Certificates of Title Nos. 131517, 131518, 131519 and 131520 of the Register of Deeds for Paraaque. Based on the foregoing, you now in effect request for a ruling on the tax consequence of the foregoing transaction. 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 One Asia Development Corp., as developer, and Atlanta Land Corporation, as lot owner, for the development of a controlled and integrated residential community 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 executed by One Asia Development Corp. and Atlanta Land Corporation for the development of a controlled and integrated residential community, and the allocation of their respective shares 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 One Asia Development Corp. and Atlanta Land Corporation of their respective shares 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/withholding tax because the allocation is a mere return of the capital that each has contributed to the project. However, should One Asia Development Corp. and Atlanta Land Corporation sell any of the portions 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 corporate income tax under Section 27 of the Tax Code of 1997, and to the creditable/expanded withholding tax (EWT) under Revenue Regulations 2-98, as amended by Revenue Regulations Nos. 6-2001 and 12-2001 ( 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. DSETac 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 ). Very truly yours, Commissioner of Internal Revenue By: (SGD.) MILAGROS V. REGALADO Assistant Commissioner Legal Service