BIR Ruling [DA-419-03]

November 19, 2003 BIR RULING [DA-419-03] 22 (B), 27, 196 DA-083-99, DA-440-2000 Casimiro Development Corporation 2nd Floor Casimiro Building Alabang-Zapote Road, Zapote Las Pias City Attention: Mr. Teofilo P. Casimiro President Gentlemen : This refers to your letter dated November 11, 2003, the pertinent portion of which is quoted as follows: "Our company, Casimiro Development Corporation, entered into a Joint Venture Agreement with Evaland Realty and Development Corporation for the alteration and re-development of the balance of unsold inventory of their projects known as Anville Homes and the adjoining Alido Heights Subdivision containing a total land area of 31,685 square meters. This joint venture project will be known as Casimiro Northville. "Evaland Realty and Development Corporation will contribute the 31,685 sq. meters land covered by various Transfer Certificate of Title issued by the Registry of Deeds of Baliuag, Bulacan. Casimiro Development Corporation shall undertake at its own expenses the land and site development and the construction of housing units. EcICSA "In return for our respective contributions to the project, Casimiro Development Corporation and Evaland Realty and Development Corporation will acquire separate ownership of specific designated units as specified in the Subdivision Agreement. These units will later be offered for sale." and that in support of your request, you submitted to this Office the following documents, to wit: 1. Joint Venture Agreement; 2. Schedule of titles; and 3. Alteration Permit issued by the Housing and Land Use Regulatory Board as approved by the Sangguniang Bayan of Baliuag, Bulacan. Based on the foregoing, you now in effect request for a ruling on the tax consequence of the foregoing transaction. In reply, please be informed that 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 or 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. In view thereof, it is our opinion that the joint venture of Casimiro Development Corporation, as developer, and Evaland Realty and Development Corporation, as lot owner, for the alteration and re-development of the balance of unsold inventory of their projects known as Anville Homes and the adjoining Alido Heights Subdivision to be known as Casimiro Northville is not subject to the corporate income tax under Section 27 of the Tax Code of 1997. However, the co-venturers are separately subject to the regular corporate income tax on their taxable income during each taxable year respectively derived by them from the aforesaid construction project. ISEHTa Considering the foregoing, the Joint Venture Agreement executed by Casimiro Development Corporation and Evaland Realty and Development Corporation for the development of Casimiro Northville, and the allocation of their respective shares in the project will not give rise to a separate taxable joint venture within the meaning of Section 22(B), in relation to Section 27(A) of the Tax Code of 1997, and that the allocation between Casimiro Development Corporation and Evaland Realty and Development Corporation of their respective shares in consideration of their contribution in the project, as stipulated in the Joint Venture Agreement, is not a taxable event and is not subject to income/withholding tax because the allocation is a mere return of the capital that each has contributed to the project. However, should Casimiro Development Corporation and Evaland Realty and Development Corporation sell any of the portions allocated to them to third parties, the gain that may be realized by them from such sale effective January 1, 2000 will be subject to the regular corporate income tax under Section 27 of the Tax Code of 1997, and to the creditable/expanded withholding tax (EWT) under Revenue Regulations 2-98, as amended by Revenue Regulations Nos. 6-2001 and 12-2001 (BIR Ruling No. 274-92 dated September 30, 1992; BIR Ruling No. UN-025-95 dated January 11, 1995; and BIR Ruling No. DA-488-98 dated November 16, 1998) , and necessarily, the said transaction shall be subject to the documentary stamp tax imposed under Section 196 of the same Code. EcHTDI This ruling. is being issued based on the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. (BIR Ruling No. 207-92 dated July 16, 1992; BIR Ruling No. 317-92 dated October 28, 1992) . Very truly yours, Commissioner of Internal Revenue By: (SGD.) MILAGROS V. REGALADO Assistant Commissioner Legal Service