BIR Ruling [DA-644-06]

October 30, 2006 BIR RULING [DA-644-06] BIR Ruling No. DA-354-2004 R.D. Interior Junior Construction/J.H. Pajara Construction Corp. (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 J.H. Pajara Construction Corporation, both companies duly organized and existing according to law, with office address at M-05 Prince Jun Condominium, 42 Timog Avenue, Quezon City and 6th Floor Strata 100 Building, Emerald Avenue, Pasig City, respectively, have entered into a Joint Venture Agreement ("JVA") dated October 1, 1999 for the purpose of pre-qualifying for the construction of Tukuran-Dobliston Road Kapatagan-Dobliston Road, Lanao Del Norte, Mindanao, Dobliston-Sultan Gumander Road, Lanao Del Norte, Sultan Gumander-Malabang Road, Lanao Del Sur, Monte Alegre Jct.-Aurora Road, Mote Alegre Jct.-Molave Road, Zamboanga Del Sur, Mindanao ("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 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. Such being the case, the Joint Venture of R.D. Interior Junior Construction and J.H. Pajara Construction Corporation 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. cDEICH Considering the foregoing, the joint venture of R.D. Interior Junior Construction and J.H. Pajara Construction Corporation 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