BIR Ruling [DA-228-04]

April 29, 2004 BIR RULING [DA-228-04] 22 (B); DA-021-2001 Toledo Construction Corporation 83 Del Monte Avenue Quezon City Attention: Mr. Januario T. Rodriguez Gentlemen : This refers to your letter dated January 22, 2004 requesting for a ruling on the tax consequences of a joint venture formed for the purpose of undertaking a construction project with the government. Documents submitted shows that Toledo Construction Corporation and Advanced Foundation Construction Systems Corporation both domestic corporations are 100% Filipino-owned; that they formed and organized the Toledo Construction Corporation/Advanced Foundation Construction System Corporation Joint Venture; that the Department of Public Works and Highways (DPWH) has offered for Public Bidding the development of the NAIA Expressway and its related Roads Project, Phase 1: Skyway Connection Ramps to Viaduct Package III (Skyway Ramps from IPT3); that the aforestated entity have agreed to participate in the said Public Bidding in a joint venture capacity and have agreed to undertake the proposed project under the terms and conditions of the contract as approved by DPWH; that the above-named corporations shall equally share in the contribution to all the necessary capital, equipment, technical personnel, management supervision and other efforts and resources for the proper implementation of the proposed project; and that should there be any profit that may be realized after the completion of the project, the parties shall divide it into two equal parts as share of each party. 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. Considering that the joint venture or consortium formed by and between Toledo Construction Corporation and Advanced Foundation Construction Systems Corporation for the purpose of undertaking a construction project for the government is excluded from the afore-quoted definition of taxable corporation, this Office is of the opinion as it hereby holds that the joint venture is not subject to the regular corporate income tax under Section 27 (A) of the Tax Code of 1997. The co-venturers, nonetheless, are liable for the payment of the corporate income tax on their respective earnings derived from the above-mentioned construction project. Inasmuch as the joint venture is exempt from corporate income tax, the gross payments by DPWH to the joint venture entity shall not be subject to the 1% creditable withholding tax under Section 2.57.2 (E) of Revenue Regulations 2-98, as amended. (BIR Ruling No. DA-021-2001 dated February 16, 2001) cESDCa This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be ascertained that the facts are different, then this ruling shall be considered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) MILAGROS V. REGALADO Assistant Commissioner Legal Service