BIR Ruling [DA-269-96]

July 24, 1996 BIR RULING [DA-269-96] Sycip Gorres Velayo & Co. 6760 Ayala Avenue Makati Manila Attention: Atty . H . L . Tiu Gentlemen : This refers to your letter dated 25 June 1996, requesting on behalf of our clients, J. V. Angeles Construction Corporation (JVACC), Grandi Lavori Fincosit Spa (GLF) and S.E.L.I. Societa Esecuzione Lavori Indraulici Spa (SELI) collectively referred to as the "consortium", for a ruling to confirm your opinion on the tax implication of a consortium formed to undertake the construction of the Umiray-Angat Transbasin Tunnel for the Metropolitan Waterworks and Sewerage System (MWSS). It is represented that JVACC is a domestic corporation engaged in construction work with office address at JVACC Building, E. Rodriguez Jr. Avenue, Pasig City; that GLF and SELI are corporations organized and existing under the laws of Italy, and duly licensed to do business in the Philippines; that on 1 October 1993 JVACC, GLF and SELI entered into a consortium agreement for the purpose of participating in the bidding of Contract No. UAT-004 and for the construction of the Umiray-Angat Transbasin Tunnel and Ancillary Facilities for the MWSS; and that on 20 June 1995, MWSS awarded the Umiray Contract to the Consortium subject to compliance with certain terms and conditions. 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. Thus, it is our opinion that the consortium of J. V. Angeles Construction Corporation, Grandi Lavori Fincosit Spa and S.E.L.I. Societe Esecuzione Lavori Indraulici Spa is not subject to the corporate income tax under Section 24 of the Tax Code, as amended. Consequently, gross payments from MWSS to be received by the said consortium shall not be subject to the 1% creditable expanded withholding tax prescribed under Section 50(b) of the Tax Code as amended, and implemented by Revenue Regulation No. 6-85, as amended. However, the consortium members are separately subject to the corporate income tax on their taxable income during each taxable year respectively derived by them from the aforesaid construction project. In the case of J. V. Angeles Construction, it shall be subject to the 35% corporate income tax under Section 24(a) of the Tax Code, as amended; while Grandi Lavori Fincosit Spa and S.E.L.I. Societa Esecuzione Lavori Indraulici Spa, being resident foreign corporations, shall be subject to the 35% corporate income tax under Section 25(a) of the Tax Code, as amended. (BIR Ruling No. 10-96 dated January 23, 1996; BIR Ruling No. 107-90 dated May 29, 1990; BIR Ruling No. 115-86). Moreover, as a contractor, the consortium shall be subject to the 10% value-added tax pursuant to Section 102(a) of the Tax Code, as amended by Executive Order No. 273 and Republic Act No. 7716 (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. aisadc Very truly yours, ALICIA P. CLEMENO Assistant Commissioner (Legal Service) By: ALICIA L. TOMACRUZ Head Rev. Executive Assistant Legal Service