DMFB Joint Venture

July 7, 2008 BIR RULING [DA-(JV-001) 008-08] Sec. 22 (B) & 27 (A); DA-293-2003 dtd. 9/03/03 DMFB Joint Venture 5/F Benpres Bldg., Exchange Road or Meralco Ave., Ortigas Center Pasig City Attention: Rey Villar Sr. Vice-President Gentlemen : This refers to your letter dated June 2, 2008, requesting a clarificatory ruling on the tax consequence of the Joint Venture Agreement between D.M. Consunji, Inc. and First Balfour, Inc. (DMFB Joint Venture, for short), which was formed to undertake the construction of LRT Line North Extension Project (Package A1, Package A2 and Package B), to wit: TDAcCa 1. Whether or not DMFB Joint Venture is subject to corporate tax; 2. Whether or not DMFB Joint Venture is subject to creditable expanded withholding tax under Revenue Regulations No. 2-98; 3. Whether or not DMFB Joint Venture is required to file quarterly and final adjusted return with the BIR; It is represented that DMFB Joint Venture is an incorporated joint venture formed to undertake the construction of LRT Line North Extension Project (Package 1A, Package A2 and Package B); that this is a contract between the DMFB Joint Venture and Light Rail Transit Authority, a government-owned and controlled corporation created under Executive Order No. 603, series of 1980 of the Government of the Republic of the Philippines. In reply please be informed as follows: 1) 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 project 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 formed as a result of the JVA by and between DM Consunji and First Balfour for the construction of the LRT Line North Extension Project (Package A1, Package A2 and Package B) is not subject to the corporate income tax under Section 27 (A) of the Tax Code of 1997. In view thereof, it is our opinion that the joint venture is exempt from income tax pursuant to Sections 22 (B) and 27 (A), both of the Tax Code of 1997. aDACcH However, the co-ventures are separately subject to the regular corporate income tax imposed under Section 27 (A) of the Tax Code of 1997, on their taxable income during each taxable year respectively derived by them from the aforesaid construction project. 2) For the same reason in #1, gross corporate payments to the joint venture are not likewise subject to the 2% withholding tax prescribed under Section 57 (B) of the same Code, as implemented by Revenue Regulations No. 2-98, as amended by Revenue Regulations No. 6-2000 and 12-2000. 3) The joint venture being exempt from corporate income tax is not required to file quarterly and final or adjusted returns. 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 considered null and void. HEASaC Very truly yours, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service