BIR Ruling [DA-639-06]

October 27, 2006 BIR RULING [DA-639-06] BIR Ruling No. DA-354-2004 R.D. Interior Junior Construction/Philworks Construction and Supply (JV) M-05 Prince Jun Condominium 42 Timog Avenue Quezon City Attention: Mr. Ricardo D. Interior, Jr. Authorized Managing Officer Gentlemen : This refers to your letter dated October 25, 2006 requesting for exemption from payment of withholding tax on the joint venture undertaking the construction of a government project. As represented, the R.D. Interior Junior Construction and Philworks Construction and Supply, both companies duly organized and existing according to law, with office address at M-05 Prince Jun Condominium, 42 Timog Avenue, Quezon City and Enrile Subdivision, Concepcion Grande, Naga City, respectively, have entered into a Joint Venture Agreement ("JVA") dated February 2, 2006 for the purpose of pre-qualifying for Contract Package I, Ligao Pio Duran Section, Arterial Road Links Development Project (Phase V) L/A No. PH-P217 ("Project") which is a project with the Department of Public Works and Highways. On August 1, 2006, the Project as indicated in the JVA was awarded to the above-mentioned Joint Venture. In reply, please be informed that pursuant to Section 22(B) of the Tax Code of 1997, the term "corporation" shall include partnerships, no matter how created or organized, joint stock companies, joint account's ( 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. AcTHCE Such being the case, the Joint Venture of R.D. Interior Junior Construction and Philworks Construction and Supply formed as a result of the JVA for the construction of the above government project is not subject to the corporate income tax under Section 27(A) of the Tax Code of 1997. Consequently, gross payments received by said joint venture is not subject to the 2% (then 1%) expanded withholding tax prescribed by Section 57(B) of the Tax Code of 1997 and as implemented by Revenue Regulations (Rev. Regs.) No. 2-98, as amended by Rev. Regs. No. 6-2001. Considering the foregoing, the joint venture of R.D. Interior Junior Construction and Philworks Construction and Supply for the construction and development of the Project will not create a taxable joint venture within the meaning of Section 22(B),in relation to Section 27(A) of the Tax Code of 1997. The joint venture, being exempt from corporate income tax is not required to file quarterly and final or adjustment/income tax returns. However, the co-venturers are separately subject to the 32% regular corporate income tax on their taxable income during each taxable year respectively derived by them from the aforesaid joint venture project. In addition to the foregoing, as a public works contractor, the joint venture shall be subject to the final withholding value-added tax at the rate of five percent (5%) pursuant to Section 114(C) of the Tax Code of 1997 as implemented by Section 4.114-2(a) of Rev. Regs. No. 16-2005. 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 as null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service