BIR Ruling [DA-470-99]

August 17, 1999 BIR RULING [DA-470-99] Picazo Buyco Tan Fider & Santos Law Offices 8/F Singapore Airlines Building 138 H.V. dela Costa St., Salcedo Village Makati City Attention: Atty . Peter Donnely A . Barot Gentlemen : This refers to your letter dated June 28, 1999 requesting for a ruling that the "Project Agreement" entered into between Anscor Land, Inc. (Anscor) and GRRD Realty Holdings Corp. (GRRD) on March 22, 1999 for the construction and development of an 8-unit townhouse (Project) does not create a taxable joint venture and that the allocation of the developed units between Anscor and GRRD is not a taxable event and is not subject to income/expanded withholding tax. prcd It is represented that: a. GRRD shall contribute land with a total area of eight hundred (800) square meters located along Sigma Drive in Alpha Village, Capitol Hills, Quezon City, and deliver its physical possession to Anscor to provide the latter unhampered access in the undertaking of the Project. b. Anscor shall contribute development and construction to the Project. c. In consideration for their respective contributions to the Project, each of GRRD and Anscor shall acquire the rights, title and interests in the units. Unless the parties mutually agree on a different method of allocation of specific units, the allocation of units between the parties is as follows: two (2) units to GRRD, five (5) units to Anscor, and the eight unit to be owned by both parties. d. Each of the parties shall have the right to sell, transfer and convey to any person the allocated units pertaining to the selling party. 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 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. LibLex Hence, it is our opinion that the joint venture of Anscor and GRRD is not subject to the corporate income tax under Section 27(A) of the Tax Code of 1997. However, the co-ventures are separately subject to the regular corporate income tax on their taxable income during each taxable year respectively derived by them from the aforesaid Project. Considering the foregoing, your opinion that the Project Agreement entered into between Anscor and GRRD for the construction and development of an 8-unit townhouse does not create a taxable joint venture and that the allocation of the developed units between Anscor and GRRD is not a taxable event and is not subject to income/expanded withholding tax is hereby confirmed. However, when the parties subsequently sell or dispose of the developed units allocated to them to third parties, the gain realized by the parties in the said transaction will be subject to the regular 33% income tax under Section 27(A) of the Tax Code of 1997 and consequently, to the expanded withholding tax imposed under Sec. 57(B) of the same Code, as implemented by Revenue Regulation No. 2-98, as amended. Furthermore, the said transaction is subject to the documentary stamp tax imposed under Sec. 196 of the same Code based on the gross selling price or fair market value, whichever is higher. The Revenue District Officer is hereby authorized to issue the necessary certificate(s) authorizing the transfer of titles to the units in the Project respectively allocated to Anscor and GRRD. LexLib 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 will be considered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal and Enforcement Group)