Sta. Clara — Nationwide Joint Venture/Consortium

October 8, 2007 BIR RULING [DA-529-07] Sec. 22 (B) DA-141-2004 Sta. Clara Nationwide Joint Venture/Consortium Carmelray Industrial Park Brgy. Punta, Calamba, Laguna Attention: Mr. Carlos P. Hadap Authorized Managing Officer Gentlemen : This refers to your letter dated September 21, 2007 stating that Sta. Clara International Corp. ("SCIC") and Nationwide Erectors Corp. ("NECO") had entered into a joint venture/consortium agreement to undertake the Project X of Monde M. Y. San Corp., located in Carmelray II Industrial Park, Barangay Punta, Calamba, Luguna. In accordance with the joint venture/consortium agreement, SCIC and NECO mutually bind each other to undertake on a 60 40 percentage of participation in the implementation of Project X in accordance with the approved plans and specifications, and to complete the same within the approved work schedule. The parties also bind each other to contribute on a percentage share on all necessary capital, manpower, equipment, technical and financial resources, and other efforts needed for the proper execution and implementation of the project. Gross payment by Monde M.Y. San Corp. will be shared proportionately by the parties and after which, they shall separately determine their profits or losses resulting from the project. All expenditures therefore made by the parties to the joint venture/consortium will be deducted by them separately on their respective gross income. SDIaCT Relative thereto, you are requesting a ruling that the joint venture/consortium is exempt from the withholding tax imposed under Revenue Regulations (Rev. Regs.) No. 2-98, as amended. In reply, please be informed that pursuant to Section 22 (B) of the Tax Code of 1997, as amended, 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 project 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/consortium formed as a result of the Memorandum of Agreement executed by and between SCIC and NECO, for the purpose of undertaking a construction project in Carmelray II Industrial Park, Barangay Punta, Calamba, Laguna, commonly known as Project X, is not subject to the corporate income tax under Section 27 (A) of the Tax Code of 1997, as amended. Consequently, gross payment to the said joint venture/consortium is not subject to the withholding tax prescribed under Section 57 (B) of the same Code, as implemented by Rev. Regs. No. 2-98, as amended by Rev. Regs. Nos. 6-2001 and 12-2001. Likewise, the joint venture/consortium being exempt from corporate income tax is not required to file quarterly and final or adjusted income tax returns. (BIR Ruling No. DA-141-2004 dated March 29, 2004) THcEaS On the other hand, the parties to the joint venture/consortium, SCIC and NECO, are subject to the regular corporate income tax on their corresponding income derived from the above project. As such, they are required to file quarterly and final or adjusted income tax returns. The gross income derived by the parties from the joint venture/consortium shall be reported upon the basis of percentage of completion of the project in accordance with Section 48 of the Tax Code of 1997, as amended. The return should be accompanied by a return certificate of architects or engineers showing the percentage of completion during the year of the entire work performed under the contract. There should be deducted from such gross income all expenditures made during the taxable year on account of the contract/project, account being taken of the material and supplies on hand at the beginning and end of the taxable period for use in connection with the work under the contract but not yet so applied. If upon completion of the contract/project, it is found that the taxable net income arising thereunder has not been clearly reflected for any year or years, the Commissioner may permit or require an amended return. 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 null and void. CIETDc Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service