BIR Ruling [DA-474-98]

November 3, 1998 BIR RULING [DA-474-98] SGV & Co. 6760 Ayala Avenue Makati City Attention: Atty . M . F. A. Balili Tax Division Gentlemen : This refers to your letter dated September 2, 1998 requesting for a ruling that the joint venture entered into by and between Sumitomo Construction Company, Limited (Sumitomo)/Kajima Corporation (Kajima) and Cavite Ideal International Construction and Development Corporation (Cavite) is exempt from the 1% expanded withholding tax imposed under Revenue Regulations No. 2-98. It is represented that Sumitomo and Kajima are corporations duly organized and existing under the laws of Japan; that Cavite is a domestic corporation duly registered with the Securities and Exchange Commission, that on January 22, 1998, the corporations entered into a joint venture agreement to undertake the construction and implementation of civil works for the Sta. Maria Bridge (Contract Package V, Rehabilitation and Maintenance of Bridges along arterial roads), Ilocos Sur, that on July 21, 1998 the joint venture entered into an agreement with the Philippine Government through the Department of Public Works and Highways (DPWH) for the implementation of the civil works for the Sta. Maria Bridge; and that you submitted to this Office copies of the Joint Venture Agreement by and between Sumitomo/Kajima and Cavite, the Special Contractor's License granted by the PCAB to the joint venture and the agreement by the joint venture with the Philippine Government. In reply, please be informed that Section 22(B) of the Tax Code of 1997 defines corporation to include partnership, 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 In view of the foregoing, the joint venture of Sumitomo/Kajima and Cavite is not subject to the corporate income tax under Section 27 of the Tax Code of 1997. Consequently, gross payments received by said joint venture is not subject to the 1% creditable expanded withholding tax prescribed under Section 57(B) of the same Tax Code. However, the co-venturers, Sumitomo/Kajima and Cavite, are separately subject to the corporate income tax on their respective taxable income during each taxable year derived by them from the aforesaid construction project. In the case of Sumitomo and Kajima, being resident foreign corporations, such corporations shall be subject to the 34% corporate income tax under Section 28(A)(1) of the Tax Code of 1997; while Cavite, a domestic corporation, shall be subject to the 34% corporate income tax imposed under Section 27(A) of the same Tax Code. (BIR Ruling No. 274-92 dated September 30, 1992) Moreover, as a contractor, the joint venture shall be subject to the 10% VAT under Section 108(A) of the Tax Code of 1997. This ruling is issued on the basis of the foregoing representations. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be declared null and void. Very truly yours, (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal & Enforcement Group)