BIR Ruling [DA-547-04]

November 5, 2004 BIR RULING [DA-547-04] 22 (B); DA-021-2001 F. J. Sababan Consultancy 2661 Taft Avenue Malate, Manila Attention: Atty. Francisco J. Sababan Gentlemen : This refers to your letter dated April 26, 2004 requesting on behalf of your client, Cyme Holdings Corporation (Cyme for brevity),for a confirmation of your opinion that the joint venture/consortium formed by Cyme and H.R. Lopez, Inc. (HRLI) is subject to the following tax rules: 1. It is exempt from income tax pursuant to Section 22 (B) and 27 (A), both of the Tax Code of 1997; 2. The joint venture/consortium being exempt from corporate income tax is not required to file quarterly and final or adjustment returns; 3. The co-venturers or consortium members shall be subject to the regular corporate income tax on their taxable income during the taxable year respectively derived by them from the aforesaid consortium project; and 4. The gross payments to the joint venture are not likewise subject to the 2% expanded withholding tax prescribed under Section 57 (B) of the same Code, as implemented by Revenue Regulations No. 2-98, as amended. HTASIa It is represented that Cyme is a domestic corporation duly organized and existing under Philippine laws with office address at Unit 802, Richville Corporate Center, 1314 Commerce Avenue Extension, Madrigal Business Park, Ayala Alabang, Muntinlupa City, while HRLI is a domestic corporation with office address at Unit 504 Tektite Towers, Ortigas Center, Ortigas Ave.,Pasig City; that Cyme is engaged in the financial packaging of large-scale projects, on the other hand HRLI is a Triple-A consortium company engaged in the general construction business; that on May 5, 2003, Cyme and HRLI entered into a joint venture agreement to bid for the development, improvement and expansion of a certain portion of the North Cemetery to be known as the North Green Park; that the aforesaid property is owned, registered and titled in the name of the City of Manila; that the joint venture for the development of the North Green Park (the Project) shall terminate upon completion of the said project; that for this purpose, Cyme and HRLI formed a Project Management Committee whose duties include, among others, by providing over-all management of the Project, accepting application of sub-contractors, evaluating the same and to award the contract, to oversee day to day operations and to approve all payments; and that on August 29, 2003, the City of Manila awarded the contract for the development of the Project to Cyme and HRLI Joint Venture. In reply, please be informed as follows: 1. Pursuant to Section 22 (B) of the Tax Code of 1997, the term "corporation" 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. Considering that the joint venture or consortium formed by and between Cyme and HRLI for the purpose of undertaking the aforesaid project for the government is excluded from the above-quoted definition of taxable corporation, this Office is of the opinion as it hereby holds that the joint venture is not subject to the regular corporate income tax under Section 27 (A) of the Tax Code of 1997. EADCHS 2. The Consortium is required to file an annual information return in lieu of the quarterly and final corporate income tax returns, because under Sections 52 (A) and 76 both of the Tax Code of 1997, only corporations subject to tax are required to file said returns. (BIR Ruling No. DA-021-2001 dated February 16, 2001) 3. However, the co-venturers or consortium members shall be subject to the regular corporate income tax on their taxable income during the taxable year respectively derived by them from the aforesaid consortium project. (BIR Ruling No. 018-99 dated February 11, 1999). 4. Since the joint venture is exempt from corporate income tax, the gross payments of the City Government of Manila to the joint venture shall not be subject to the 1% creditable withholding tax under Section 2.57.2 (E) of Revenue Regulations 2-98, as amended by RR No. 6-2001. (BIR Ruling No. DA-293-2003 dated September 9, 2003) Moreover, as public works contractor, the joint venture shall be subject to the 8.5% withholding on VAT under Section 114 (C) of the Tax Code of 1997, creditable against the 10% value-added tax imposed upon it under Section 108 (A) of the same Tax Code. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be ascertained that the facts are different, then this ruling shall be considered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) MILAGROS V. REGALADO Assistant Commissioner Legal Service