BIR Ruling [DA-392-05]

September 16, 2005 BIR RULING [DA-392-05] Section 22 (B); DA-355-2004 R.D. Policarpio & Co.,Inc. 544 Samsonville Subd., Dau, Mabalacat Pampanga Attention: Mr. Noelito D. Policarpio Authorized Managing Office R.D. Policarpio & Co.,/Pumyang Const. Co. Ltd. (JV) Gentlemen : This refers to your letter dated September 12, 2005 requesting exemption from the 2% creditable withholding tax and the filing of income tax returns. It is represented that on July 9, 1999, R.D. Policarpio & Co.,Inc ,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 Pumyang Construction Co.,Ltd .,a construction firm duly organized and existing under and by virtue of the laws of the Republic of Korea, with principal office address at 750-14 Bang-bae-dong, Seocho-ku, Seoul Korea; that under the JVA, R.D. Policarpio & Co.,Inc, and Pumyang Construction Co.,Ltd .,("Parties") agree on a 60/40, respectively, on all necessary capital, equipment, technical personnel, management supervision and other efforts and resources for the proper prosecution and implementation of the project in the event that the joint venture is awarded the contract for the said project and further bind themselves at all times, during the existence of joint venture, to extend to each other respective fullest cooperation and best efforts towards profitable construction of the project in accordance with the approved plans and specifications and to complete the same within the approved work schedules; that the parties shall be jointly and severally liable for any and all obligations which the joint venture may incur in relation to the contract which the said joint venture may enter into with the Department of Public Works & Highways (DPWH) ;that the parties are all desirous of pre-qualifying for and in participating in the public bidding for the construction of the Sixth Road Project, Contract Package 6M1-15 Licomo-Quiniput Section, Ipil-Zamboanga City Road Project ;and that the net profit of the joint venture shall likewise be divided on a 60/40 basis. CcAHEI 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 R.D. Policarpio & Co.,Inc, and Pumyang Construction Co.,Ltd .,for the construction of the Sixth Road Project, Contract Package 6M1-15 Licomo-Quiniput Section, Ipil-Zamboanga City Road Project 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 above specified, 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, R.D. Policarpio & Co.,Inc ,and Pumyang Construction Co.,Ltd ., Joint Venture is subject to the 10% value-added tax as contractor pursuant to Section 108(A) of the Tax Code of 1997. (BIR Ruling No. DA-355-2004 dated June 25, 2004) AHECcT 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, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service