BIR Ruling [DA-547-06]

September 13, 2006 BIR RULING [DA-547-06] 22 (B), 27 (A), R.R. 2-98; DA-391-2006 J.E. Manalo & Co., Inc.-Home Construction, Inc. Joint Venture 1188 Bernal St., corner C. Raymundo Avenue Rosario, Pasig City Attention: Mr. Augusto F. Manalo Authorized Managing Officer Gentlemen : This refers to your letter dated August 03, 2006 stating that J.E. Manalo & Co., Inc. and Home Construction Inc., both domestic corporations engaged in the construction business, formed a joint venture known as J. E. Manalo & Co., Inc.-Home Construction Inc. Joint Venture; that the joint venture entered into a contract with the Department of Transportation and Communications (DOTC) for the CONSTRUCTION AND REHABILITATION OF NINE (9) FEEDER PORTS, CONTRACT PACKAGE E UNDER STAGE II OF THE SOCIAL REFORM RELATED FEEDER PORTS DEVELOPMENT PROJECT (SRRFPDF) financed under OECF Loan Agreement No. PH-P173; that in accordance with the joint venture agreement, the parties mutually bind each other to contribute to said joint venture on a 50/50 percentage share on all the necessary capital, equipment, technical personnel, management. supervision, and other efforts for the proper execution or implementation of the aforestated project; and that the parties shall be jointly and severally liable for any and all obligations which the joint venture may incur in relation to the contract. In connection therewith, you now request for a ruling on your opinion that J.E. Manalo & Co., Inc.-Home Construction, Inc. Joint Venture is exempt from income tax and expanded withholding tax. In reply, please be informed that pursuant to Section 22(B) of the Tax Code of 1997, as amended, the term corporation includes partnership, no matter how created or organized, joint stock companies, joint accounts (cuentas en participacion), association or insurance companies, but does not include general professional partnership 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 therefore, that it is the intention of the legislature to exclude joint venture or consortium formed for the purpose of undertaking construction projects from the definition of taxable corporation, this Office hereby opines that the joint venture by and between J.E. Manalo & Co., Inc. and Home Construction Inc. is not subject to income tax under Section 27 of the Tax Code of 1997, as amended by R.A. 9337. Accordingly, the joint venture or consortium formed by and between J.E. Manalo & Co., Inc. and Home Construction Inc. for the purpose of undertaking the DOTC's project for the CONSTRUCTION AND REHABILITATION OF NINE (9) FEEDER PORTS, CONTRACT PACKAGE E UNDER STAGE II OF THE SOCIAL REFORM RELATED FEEDER PORTS DEVELOPMENT PROJECT (SRRFPDF) financed under OECF Loan Agreement No. PH-P173 is excluded from the aforequoted definition of taxable corporation, hence, not subject to the regular corporate income tax under Sections 22(B) and 27(A) of the Tax Code of 1997, as amended by R.A. 9337. The co-venturers nonetheless, are liable for the payment of the corporate income tax on their respective earnings derived from the above-mentioned construction project. HEAcDC Since the joint venture is exempt from income tax, the gross payments of DOTC to the joint venture shall not be subject to the 2% withholding tax prescribed under Section 57(B) of the Tax Code of 1997, as amended by R.A. 9337, and as implemented by Revenue Regulations No. 2-98, as amended by Revenue Regulations Nos. 6-2001 and 12-2001. J.E. Manalo & Co., Inc.-Home Construction, Inc. Joint Venture will only be required to file an annual information return in lieu of the quarterly and final adjustment/income tax returns, because under Sections 52(A) and 76 both of the Tax Code of 1997, as amended by R. A. 9337, only corporations subject to tax are required to file said returns. Moreover, as a public works contractor, the joint venture shall be subject to the 12% VAT as contractor pursuant to Section 108(A) of the Tax Code of 1997, as amended by R.A. 9337. 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 as null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service