BIR Ruling [DA-391-06]

June 26, 2006 BIR RULING [DA-391-06] 22 (B), 27 (A); R.R. 2-98; DA-021-2001 Adige-Sta. Clara Joint Venture 97 Edsa, Guadalupe, Makati City Attention: Mr. Ulysses M. Bautista Authorized Managing Officer Gentlemen : This refers to your letter dated May 10, 2006 stating that Sta. Clara International Corporation, a local corporation engaged in the construction business and Adige Bitume Impresa S.P.A., a non-resident foreign corporation have formed a joint venture solely for the purpose of undertaking the Department of Public Works and Highways (DPWH) Component Project under the Help for Catubig Agricultural Advancement Project in Northern Samar; that in accordance with the joint venture agreement, the parties mutually bind each other to contribute to said joint venture on a 60/40 percentage share on all the necessary capital equipment, technical personnel, management supervision and other efforts and resources needed for the implementation of the aforestated project; and that profit and losses will be shared directly proportional to the share of each party. In connection therewith, you now request for a ruling on your opinion that Adige-Sta. Clara Joint Venture is exempt from income tax and expanded withholding tax. In reply, please be informed that pursuant to Section 22(B) of the Tax Code of 1997, as amended, the term corporation includes partnership, no matter how created or organized, joint stock companies, joint accounts ( cuentas en participacion ), association or insurance companies, but does not include general professional partnership 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. Considering therefore, that it is the intention of the legislature to exclude joint venture or consortium formed for the purpose of undertaking construction projects from the definition of taxable corporation, this Office hereby opines that the joint venture by and between Adige Bitume Impresa S.P.A. and Sta. Clara International Corporation is not subject to income tax under Section 27 of the Tax Code of 1997, as amended by R.A. 9337. Accordingly, the joint venture or consortium formed by and between Adige Bitume Impresa S.P.A. and Sta. Clara International Corporation for the purpose of undertaking the DPWH Component Project under the Help for Catubig Agricultural Advancement Project , is excluded from the aforequoted definition of taxable corporation, hence, not subject to the regular corporate income tax under Sections 22(B) and 27(A) of the Tax Code of 1997, as amended by R.A. 9337. The co-venturers nonetheless, are liable for the payment of the corporate income tax on their respective earnings derived from the above-mentioned construction project. Since the joint venture is exempt from income tax, the gross payments of DPWH to the joint venture shall not be subject to the 2% withholding tax prescribed under Section 57(B) of the Tax Code of 1997, as amended by R.A. 9337, and as implemented by Revenue Regulations No. 2-98, as amended by Revenue Regulations Nos. 6-2001 and 12-2001. Adige-Sta. Clara Joint Venture will only be required to file an annual information return in lieu of the quarterly and final adjustment/income tax returns, because under Sections 52(A) and 76 both of the Tax Code of 1997, as amended by R.A. 9337, only corporations subject to tax are required to file said returns. Moreover, as a public works contractor, the joint venture shall be subject to the 12% VAT as contractor pursuant to Section 108(A) of the Tax Code of 1997, as amended by R.A. 9337. 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 as null and void. DTEcSa Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service