BIR Ruling [DA-223-99]

April 13, 1999 BIR RULING [DA-223-99] Mitsubishi Heavy Industries, Ltd . J. H. Pajara Construction Corp. R. D. Policarpio & Company, Inc. Joint Venture/Consortium C/o Strata 100 Building Emerald Avenue Pasig City Attention: Mr. Tim A. Acedo Filipino Resident Officer Gentlemen : This refers to your letter dated November 9, 1998 requesting for a ruling that a joint venture agreement to undertake the Rehabilitation Works of Route 3 Highway, Pinatubo Hazard Urgent Mitigation Project under the Department of Public Works and Highways, is exempt from the 1% expanded withholding tax. It appears that Mitsubishi Heavy Industries, Ltd. J. H. Pajara Construction Corporation R. D. Policarpio & Co., Inc. Joint Venture/Consortium was established between Mitsubishi Heavy Industries, Ltd. with principal office at No. 5-1, Marunouchi 2-Chome, Chiyoda-ku, Tokyo, Japan, J. H. Pajara Construction Corporation with principal office at 6th Floor, Strata 100 Building, Emerald Avenue, Pasig City and R. D. Policarpio & Co., Inc. with principal office at 544 Samsonville Subdivision, Dau, Mabalacat, Pampanga; and that the joint venture/consortium will undertake the Rehabilitation Works of Route 3 Highway, Pinatubo Hazard Urgent Mitigation Project under the Department of Public Works and Highways. 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 thereof, it is our opinion that the Mitsubishi Heavy Industries, Ltd. J. H. Pajara Construction Corporation R. D. Policarpio & Co., 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 Department of Public Works and Highways are not likewise subject to the expanded withholding tax prescribed under Section 57(B) of the Tax Code of 1997. SHacCD However, each of the co-venturers 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, Mitsubishi Heavy Industries, Ltd. 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, 1998, the rate of income tax shall be 34%, 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 Mitsubishi Heavy Industries, Ltd. J. H. Pajara Construction Corporation R. D. Policarpio & Co., 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) 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)