BIR Ruling [DA-346-04]

June 25, 2004 BIR RULING [DA-346-04] Section 22 (B) DA-293-2003 Golden City Engineering & Const. & Marra Construction Joint Venture 3368 Harvard St., Brgy. Pinagkaisahan Makati City Attention: Mr. Aguinaldo S. Guintu Authorized Managing Officer Gentlemen : This refers to your letter dated March 9, 2001 requesting for exemption from the 2% creditable withholding tax and filing of income tax returns. It is represented that on November 16, 1999, Golden City Engineering and Construction, a sole proprietorship duly organized and existing under the laws of the Philippines, with postal address at No. 3368 Harvard St., Pinagkaisahan, Makati City entered into a Joint Venture Agreement (JVA); with Marra Construction, likewise a single proprietorship duly organized and existing under the laws of the Philippines, with postal address at No. 102 Augusto Building, 478 Rizal Avenue Ext., Caloocan City; that under the JVA, Golden City Engineering and Construction and Marra Construction ("Parties") agree to pool their financial, equipment and technical resources for the purpose of prequalifying for and participating in the public bidding and actually undertaking the construction of the Marine Slipway Improvement Project, Manila North Harbor [Manila North Harbor Modernization, Terminal I, Phase I] ("Project") of the Philippine Ports Authority (PPA); that in the event that the joint venture enters into a contract with the PPA, the JVA provides for the following terms and conditions: 1. The parties shall be jointly and severally liable for all obligations which the joint venture may incur in relation to the contract which it may enter into with PPA; 2. The Parties hereby mutually have each other to contribute to the JV on an equal or share-and-share alike basis, all the necessary capital, equipment, technical personnel, management supervision and other efforts and resources for the proper prosecution or implementation of the Project; and 3. The net profit of the JV shall likewise be divided between the Parties on equal basis. In reply, please be informed as follows: 1) Pursuant to Section 22(B) of the Tax Code of 1997, the term "corporation", shall include partnerships, no matter how created or organized, joint stock companies, joint accounts ( cuentas en participation ), 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. Such being the case, the joint venture formed as a result of the Joint Venture Agreement by and between Golden City Engineering and Construction and Marra Construction for the construction of the Marine Slipway Improvement Project, Manila North Harbor (Manila North Harbor Modernization, Terminal I, Phase I) of PPA is not subject to the corporate income tax under Section 27(A) of the Tax Code of 1997. In view thereof, it is our opinion that the joint venture is exempt from income tax pursuant to Sections 22(B) and 27(A), both of the Tax Code of 1997. However, the co-venturers are separately subject to the regular corporate income tax imposed under Sections 27(A) of the Tax Code of 1997, on their taxable income during each taxable year respectively derived by them from the aforesaid construction projects. 2) For the same reason in #1, gross payments to the joint venture are not likewise subject to the 2% withholding tax prescribed under Section 57(B) of the same Code, as implemented by Revenue Regulations No. 2-98, as amended by Revenue Regulations Nos. 6-2000 and 12-2000. 3) The joint venture being exempt from corporate income tax is not required to file quarterly and final or adjustment/income tax returns. In addition to the foregoing, Golden City Engineering and Construction and Marra Construction Joint Venture is subject to the 10% value-added tax as contractor pursuant to Section 108(A) of the Tax Code of 1997. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclose that the facts are different, then this ruling shall be considered as null and void. IASEca Very truly yours, Commissioner of Internal Revenue By: (SGD.) MILAGROS V. REGALADO Assistant Commissioner Legal Service