BIR Ruling [DA-345-04]

June 25, 2004 BIR RULING [DA-345-04] 22 (B) DA-488-98 ASB Development Corporation ASB Center, 114 Benavidez St. Legaspi Village, Makati City Attention: Mr. Rolando P. Domingo Senior Vice-President Gentlemen : This refers to your letter dated June 5, 2004 stating that ASB Development Corporation (ASBDC), a corporation organized and existing under and by virtue of the laws of the Philippines and the owner of BSA Twin Tower Project, whose principal office is located at ASB Center Building, 114 Benavidez Street, Legaspi Village, Makati City entered into an agreement with the suppliers and contractors of the aforestated Project, wherein said suppliers and contractors agreed to receive condominium units/parking spaces as a return of their investments in the said Project. Based on the foregoing, you now request for a ruling to confirm your opinion that: 1. The agreement between ASBDC and the suppliers/contractors is in the nature of joint development project and will not create a taxable joint venture within the meaning of Section 22(B), in relation to Section 27(A) of the Tax Code of 1997. 2. The allocation of the units and issuance of the corresponding Condominium Certificates of Title by the Registry of Deeds of Mandaluyong City to the designated suppliers/contractors representing their shares or participating interests in the project is not a taxable event, therefore, not subject to income tax and/or expanded withholding tax because it is only upon sale or disposition of the units allocated to them to other third parties that gain realized in the said transaction will be subject to the income tax and/or expanded withholding tax. The allocation of the units is not subject to value-added tax and documentary stamp tax, since it is likewise not a taxable event. 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. It is understood however, that upon the subsequent disposition by ASBDC or the aforequoted suppliers and contractors of the areas allocated to them, the gain that may be realized by them from such sale will be subject to the creditable withholding tax under Revenue Regulations (RR) No. 2-98, as amended by RR No. 6-2001 or capital gains tax under Sections 24(D)(1) or 27(D)(5), as the case may be. Moreover, such sale shall be subject to the documentary stamp tax imposed under Section 196 of the Tax Code of 1997, based on the gross selling price or fair market value of the properties, whichever is higher. Furthermore, the said sale shall likewise be subject to VAT. 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. aTcHIC Very truly yours, Commissioner of Internal Revenue By: (SGD.) MILAGROS V. REGALADO Assistant Commissioner Legal Service