BIR Ruling [DA-226-96]

July 5, 1996 BIR RULING [DA-226-96] Toledo/Persan Joint Venture # 83 Del Monte Avenue Quezon City Attention: Mr . Januario T . Rodriguez Gentlemen : This refers to your letter dated November 10, 1995, requesting for a ruling on the tax consequences of a joint venture formed exclusively to undertake construction projects. It is represented that Toledo Construction Corporation (TCC), a domestic corporation and 100% Filipino owned, and Persan Construction (PC), a sole proprietor (Reynaldo S.L. Perez), (hereinafter referred to as TCC/PC Joint Venture), have entered into a joint venture agreement for the purpose of pooling their resources together (i.e. equipment, services, skill, knowledge, etc.) under a joint proprietary interest and right of mutual control over the subject matter of the enterprise with the end in view of dividing the profits, if any, among themselves; that the joint venture is duly registered with the Department of Trade and Industry and the Bureau of Internal Revenue as a VAT taxpayer; and that it maintains Books of Accounts separate from those being maintained by the parties to the said joint venture. In reply, please be informed that pursuant to Section 20(b) of the Tax Code, as amended, 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 TCC/PC Joint Venture is not subject to the corporate income tax under Section 24 (a) of the Tax Code, as amended. Consequently, gross payments received by the said joint venture is not subject to the 1% creditable expanded withholding tax prescribed by Section 50 (b) of the Tax Code, as amended and implemented by Revenue Regulations No. 6-85 as amended. However, the co-venturers, TCC and PC are separately subject to the 35% corporate income tax imposed under Section 24 (a) of the Tax Code, as amended, on their taxable income respectively derived during each taxable year from all sources including of course, those from the said construction project. Moreover, as contractor, the joint venture shall be subject to the 10% value added tax pursuant to Section 102(a) of the Tax Code, as amended by Republic Act No. 7716. Furthermore, inasmuch as the TCC/PC Joint Venture is not considered as a corporation pursuant to Section 20(b) of the Tax Code, as amended, Section 68 (Declaration of Corporate Quarterly Income Tax) and Section 69 (Final Adjustment Return) of the same Code does not apply to it. 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. (BIR Ruling No. 274-92 dated 30 September 1992) Very truly yours, ALICIA P. CLEMENO Assistant Commissioner Legal Service By: ALICIA L. TOMACRUZ Head Revenue Executive Assistant (Legal Service)