BIR Ruling [DA-440-00]

December 28, 2000 BIR RULING [DA-440-00] 22 (B), 27, 196 DA-083-99 Tinoco Tinoco & Associates Suite 809 8/F, West Trade Center 132 West .Avenue Quezon City Attention: Atty . Reinerosa S . Tinoco Gentlemen : This refers to your letter dated December 12, 2000, the pertinent portion of which is quoted as follows: "My client, JTB DEVELOPMENT CO., INC. as developer, and Spouses NARCISO V. VILLAPANDO and ROSALINDA CRUZ-VILLAPANDO, as lot owners, have applied before the Register of Deeds of Quezon City for the registration and issuance of the corresponding Condominium Certificate of Titles covering twenty six (26) condominium units and twenty one (21) parking spaces of the newly constructed J ROSA CONDOMINIUM located at #44 Matimtiman St. corner Magiting St., Teachers Village, East Diliman, Quezon City. SIcEHC "'The latter, as owner, of that parcel of land known as Lot 1 Block 50 of the subdivision Plan Psd-56573, situated in East Diliman, Quezon City, and the former, as developer, entered into a joint venture agreement sometime in March 29, 9000, whereby they expressly stipulated that the owner of the land will provide the land whereon the developer will construct the condominium building, with all expenses to be shouldered by the developer. After the building is completed, ownership of certain condominium and parking units will be apportioned to them as their share in such joint venture undertaking . . . "From the aforementioned agreement, it is reflected that the parties: JTB DEV. CO., INC., developer, and Spouses NARCISO and ROSALINDA VILLAPANDO, as lot owners, have pooled their respective resources to put up a condominium project and after its completion, share in the fruits of their industry by allocating to each other specific number of condominium units and parking spaces corresponding to their respective contribution, enumerated as follows: "For the lot owners: a) Two (2) units of commercial units at the ground floor (designated as GO1 and GO2) b) Two (2) units of residential units at the fourth (4th) floor (designated as unit 401 and 403) c) Four (4) units of parking spaces at the ground floor (designated as G1, G2, G3 and G4) "For the developer: a) All the remaining twenty two (22) commercial/residential units b) All the remaining seventeen (17) parking spaces" 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 JTB Development Co., Inc., as developer, and Spouses Narciso V. Villapando and Rosalinda Cruz-Villapando, as lot owners, for the construction of the "J Rosa Condominium" 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 sale of their respective shares in the condominium. TDCcAE Considering the foregoing, the Memorandum of Agreement executed by JTB Development Co., Inc. and the Spouses Narciso V. Villapando and Rosalinda Cruz-Villapando for the construction and development of the J Rosa Condominium, and the allocation of their specific floors or units therein and parking slots 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 JTB Development Co., Inc. and the Spouses Narciso V. Villapando and Rosalinda Cruz-Villapando of the floors or units therein and parking slots in consideration of their contribution in the project, as stipulated in the Memorandum of Agreement, is not 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 JTB Development Co., Inc. and the Spouses Narciso V. Villapando and Rosalinda Cruz-Villapando sell any of the floors or portions of the floors 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 income tax under the Tax Code of 1997, and to the creditable expanded withholding tax (EWT) under Revenue Regulations 2-98, as amended (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. 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. 317-99 dated October 28, 1999). HCDAac Very truly yours, Commissioner of Internal Revenue By: (SGD.) LILIAN B. HEFTI Deputy Commissioner Legal and Inspection Group