BIR Ruling [DA-352-04]

June 25, 2004 BIR RULING [DA-352-04] Section 22 (B) BIR Ruling No. 20-80 & DA-293-2003 Marra Construction-C.S. Santiago Const. Co., Inc. Joint Venture 48 Daanghari St., Navotas Metro Manila Attention: Mr. Manuel R. Ramos Authorized Managing officer Gentlemen : This refers to your letter dated March 9, 2004 requesting for exemption from the 2% creditable withholding tax and filing of income tax returns. It is represented that on November 16, 1999, Marra Construction, 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 entered into a Joint Venture Agreement (JVA) with C.S. Santiago Construction Co., Inc., a corporation duly organized and existing under and by virtue of the laws of the Republic of the Philippines, with postal address at Rm. 400 A & B, Delta Motors Bldg., West Ave., Quezon City; that under the JVA, Marra Construction and C.S. Santiago Construction Co., Inc. ("Parties") agree to pool their resources, i.e. , financial capabilities, experience, manpower and equipment for the purpose of prequalifying for and participating in the public bidding and actually undertaking the construction and rehabilitation of five (5) feeder ports under Stage 11 of the Social Reform Related Feeder Ports Development Project [Contract Package- C] ("Project") of the Department of Transportation and Communications (DOTC); that in the event that the joint venture ("JV") enters into a contract with the DOTC, the JVA provides for the following terms and conditions: 1. The Parties shall jointly perform the relevant works; 2. The construction works shall be undertaken by the JV and all monies, equipment, materials, supplies and other properties acquired, and all liabilities incurred by the JV shall be held jointly and severally in such time; and 3. The Parties agree to contribute its resource on the following basis: a. Marra 70% b. C.S. Santiago 30% and that whatsoever revenue/obligations arising therefrom shall be prorated in the same percentage distribution. 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 Marra Construction and C.S. Santiago Construction Co., Inc. for the construction and rehabilitation of five (5) feeder ports under Stage 11 of the Social Reform Related Feeder Ports Development Project [Contract Package- C] of the DOTC 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, Marra Construction and C.S. Santiago Construction Co., Inc. 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 disclosed that the facts are different, then this ruling shall be considered as null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) MILAGROS V. REGALADO Assistant Commissioner Legal Service