BIR Ruling [DA-353-04]

June 25, 2004 BIR RULING [DA-353-04] Section 22 (B) BIR Ruling No. 20-80 & DA-293-2003 RR & B Finest Const. & Dev. Corp.- J.C. Pion Construction Joint Venture c/o 18 Daanghari St., Navotas Metro Manila Attention: Mr. Joselito 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 June 30, 2003, RR & B Finest Const. & Dev. Corp.,a corporation duly organized and existing under and by virtue of the laws of the Republic of the Philippines entered into a Joint Venture Agreement (JVA) with J.C. Pion Construction, a sole proprietorship duly organized and existing under and by virtue of the laws of the Republic of the Philippines, with postal address at c/o 212 Gov. F. Halili Ave.,Bagbaguin, Sta. Maria, Bulacan; that under the JVA, RR & B Finest Const. & Dev. Corp. and J. C. Pion Construction ("Parties") agree to pool their resources, i.e. ,financial capabilities, experience, manpower and equipment for the purpose of participating in the public bidding and actually undertaking the construction of the Back-Up Area, Port of Sta. Cruz, Marinduque of the Philippine Ports Authority (PPA) PDO Southern Luzon; that in the event that the joint venture ("JV") enters into a contract with the PPA, the JVA provides for the following terms and conditions: 1. 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 2. The Parties agree to contribute its resources on the basis of the following percentage: a. RR & B Finest Const. & Dev. Corp. 51% b. J.C. Pinon Const. 49% 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 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. Such being the case, the joint venture formed as a result of the Joint Venture Agreement by and between RR & B Finest Const. & Dev. Corp. and J.C. Pion Const. for the construction of the Back-Up Area, Port of Sta. Cruz, Marinduque of the Philippine Ports Authority (PPA) PDO Southern Luzon 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 Section 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, RR & B Finest Const. & Dev. Corp.-J.C Pion Const. 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