Mr. Joseph Wang

October 24, 2007 BIR RULING [DA-555-07] 22 (B) Mr. Joseph Wang c/o No. 1 Second Avenue Citihomes, Bacoor, Cavite S i r : This refers to your letter dated July 19, 2006 stating that Mr. Leonardo Trinidad (Owner) is the absolute and registered owner of a parcel of land located at Imus, Cavite covered by TCT No. T-935169 issued by the Registry of Deeds for the Province of Cavite and containing an area of 31,073 square meters; that on the other hand, Masaito Development Corporation (Company) is a corporation duly registered with the Securities and Exchange Commission (SEC) with principal office address at No. 1 Second Avenue, Citihomes, Bacoor, Cavite; that the Owner wishes to cause the development of a portion of the said property into a commercial/residential subdivision; that the Company, as Developer, has the capacity and capability to undertake the development of the said Property; that a Joint Venture Agreement (JVA) will be entered into by the Owner and Company, as the Developer, for the subdivision and development works; and that the salient features of the JVA are as follows: 1. The Developer shall, at its own expense, prepare all subdivision and development plans, engineering, designs and other plans for the Project, including all necessary field surveys, research and studies, conformably to the standard rules and regulations of the HLURB and other government agencies which in one way or another regulate and/or supervise the construction and development of residential subdivisions; and 2. The Developer shall, at its own expense, subdivide the Project, monument each lot, obtain technical description of each individual lot, and cause the titling of such lots all in accordance with the approved subdivision plan. Based on the foregoing representations, you now request confirmation of your opinion that 1. The JVA entered into by and between the Owner and the Company, as Developer, does not create a separate taxable entity; 2. The allocation and distribution of the saleable lots to the Owner and the Company is not subject to income tax/expanded withholding tax (EWT), value-added tax (VAT) or gross receipts tax (GRT) and documentary stamp tax (DST); 3. The sale by the Owner or the Company of their respective shares in the saleable lots to third parties is generally subject to income tax, EWT (unless exempt under Republic Act (R.A.) No. 7279 on Socialized Housing and similar acts), DST and VAT (unless exempt under Section 109 (w) of the Tax Code of 1997; HcaATE 4. The Revenue District Office (RDO) having jurisdiction over the property is authorized to issue the Tax Clearance/Certificate Authorizing Registration (CAR) with regard to the sale of all saleable lots within the Project. In reply thereto, please be informed that your opinion is hereby confirmed as follows: 1. Pursuant to Section 22 (B) of the Tax Code of 1997, the term corporation includes 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. It is to be emphasized, however, that P.D. 929 amended the definition of the taxable corporation as not to include joint venture formed for the purpose of undertaking construction projects. The reasons for such amendment are: (1) Local contractors contribute substantially to the development program of the country; (2) Local contractors are at a disadvantage in competitive bidding with foreign contractors in view of limited capital and financial resources; (3) In order to be able to compete with big foreign contractors, it may be necessary for them to enter into joint ventures to pool, their limited resources in undertaking big construction projects; (4) To assist them in achieving competitiveness with foreign contractors, the joint ventures formed by them should not be considered an additional income tax lien. Considering 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 is of the opinion as it hereby holds that the JVA entered into by the Owner and the Company, as the Developer, is not subject to the corporate income tax under Section 27 (A) of the Tax Code of 1997. However, the co-venturers are separately subject to the regular corporate or individual income tax on their taxable income during each taxable year respectively derived by them from the aforesaid construction project. 2. The allocation and distribution of the saleable lots to the Owner and the Company in consideration of their respective contributions, as stipulated in the JVA is not a taxable event and is not subject to income tax, withholding tax, value-added tax and documentary stamp tax because the allocation is a mere return of capital that each has contributed. Moreover, in the event that the Company, as developer, decides to transfer the title to the property representing its share in the saleable lots under its name, such transfer is still not subject to the aforementioned taxes. 3. However, upon subsequent sale by the Owner or the Company of their respective shares in the saleable lots to third parties, the gain that may be realized by them from such sale will be subject to the regular corporate income tax under Section 27 (A) or individual income tax under Section 24 (A) of the Tax Code of 1997 and to the creditable withholding tax under Revenue Regulations No. 2-98, as amended, and to the documentary stamp tax imposed under Section 196 of the Tax Code of 1997, as amended, and to the value-added tax imposed under R.A. No. 9337, as implemented by Revenue Regulations No. 16-2005, unless exempt under Section 109 (w), supra . (BIR Ruling Nos. 274-92 dated September 30, 1992; 010-96 dated January 23, 1996; BIR Ruling Nos. DA065-97 dated February 10, 1997; DA286-98 dated June 29, 1998) 4. This will authorize the Revenue District Officer (RDO) of the revenue district where the property is located to issue the corresponding Tax Clearance Certificate (TCL) with regard to the sale of developed units as prescribed in Revenue Regulations No. 24-2002. Finally, the joint venture or the party who undertakes the development of the project shall file an Annual Information Return and other returns required to be filed with the RDO where it is registered or required to be registered. 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. Very truly yours, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service