VIISA Resources, Inc.

September 16, 2008 BIR RULING [DA-(JV-029) 223-08] 22 (B); DA-373-2008; DA-126-2001 VIISA Resources, Inc. 878 Residencia de Libis 878 E. Rodriguez Jr. Ave. (C-5) Libis, Quezon City Attention: Mr. Vivencio E. Golamco President Gentlemen : This refers to your letter dated July 24, 2008 requesting for exemption from capital gains tax, documentary stamp tax and value-added tax on the Joint Venture Agreement (JVA) entered into by Vivencio E. Golamco with VIISA Resources, Inc. (VRI) for the development of several parcels of land into a modern first-class residential condominium to be known as 878 Residences (Project for brevity) located at 878 E. Rodriguez Jr. Ave., Libis, Quezon City. Documents submitted show that Vivencio E. Golamco is the registered owner of four (4) parcels of land covered by Transfer Certificates of Title (TCT) Nos. 102505, 101536, 98528 and 98526 with an aggregate area of one thousand eighty four (1,084) sq.m. VRI, on the other hand, is a corporation duly organized under Philippine laws and is engaged in property development and construction business. As stipulated in the JVA dated July 18, 2008, the Owner shall contribute the above-stated parcels of land, while VRI shall finance and infuse development expertise for the construction and development of the Project. As a return of their respective contributions, the parties agreed that Vivencio E. Golamco will be allocated 25% of the net saleable area of the Project, the other 75% shall pertain to the share of VRI. In reply, please be informed as follows: EcSCHD 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. P.D. No. 929 amended the definition of the taxable corporation so 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. STcEaI Considering the clear provision of Sec. 22 (B) which manifests the intention of the legislature to exclude from the definition of taxable corporation joint venture/s (or consortium) formed for the purpose of undertaking construction projects, this Office hereby confirms your opinion that the joint venture of VRI and Vivencio E. Golamco is not a corporation subject to corporate income tax. However, for VAT purposes, the joint venture (or consortium) is by itself a taxable entity. (BIR Ruling No. DA-373-2008 dated June 19, 2008) The allocation of the saleable condominium units and parking spaces in the Project between VRI and Vivencio E. Golamco, in consideration of their respective contributions, as stipulated in their agreement is not a taxable event and is not subject to income tax or any withholding tax because the allocation is a mere return of capital that each has contributed. (BIR Ruling No. DA-192-2001 dated October 17, 2001) The transfer is also not subject to VAT since under Section 105 of the Tax Code of 1997, any person who, in the course of trade or business, sells, barters, exchanges, leases goods or properties, renders service and any person who imports goods shall be subject to VAT imposed in Sections 106 to 108 of the same Tax Code, as amended. Hence, by contributing its parcels of land, Vivencio E. Golamco, neither sells, barters, exchanges goods, property nor renders service to be subject to VAT. (BIR Ruling No. DA-240-2001 dated November 16, 2001) The Partition Agreement whereby Vivencio E. Golamco and VRI will allocate unto each other their shares in consideration of their respective contributions is not subject to the documentary stamp tax imposed under Section 196 of the Tax Code of 1997, as amended, income tax and any withholding tax because the allocation is made without monetary consideration and is not in connection with a sale. The partition is made merely to segregate the saleable area between the parties, as the return of the capital which each has contributed. However, the acknowledgment to said Partition Agreement is subject to the documentary stamp tax pursuant to Section 188 of the Tax Code of 1997, as amended. It is understood however, that upon subsequent disposition by the co-venturers of the areas allocated to them, the gain that may be realized by them from such sale will be subject to the expanded withholding tax under RR No. 2-98, as amended by RR No. 6-2001 or capital gains tax under Sections 24 (D) (1) and 27 (D) (5), as the case may be. Moreover, such sale shall be subject to the documentary stamp tax imposed under Section 196 of the Tax Code of 1997, as amended, based on the gross selling price or fair market value of the properties, whichever is higher. Furthermore, the said sale shall likewise be subject to VAT. aEDCAH This will authorize the Revenue District Officer (RDO) of the revenue district where the properties are located to issue the corresponding Certificate Authorizing Registration (CAR) and Tax Clearance Certificate (TCL) involving the transfer of the titles to the parties based on their respective allocations pursuant to the Partition Agreement, without need of the presentation of proof of payment of the expanded withholding tax, value-added tax and the corresponding documentary stamp tax. Provided, that the parties to the joint venture shall cause the Register of Deeds to annotate on the TCTs/CCTs that a development project is being undertaken on the land and is the object of the JVA between the parties, and that the joint venture is held to be a tax-exempt entity pursuant to this Ruling issued by this Office. Provided further, that parties to the joint venture shall inform the Bureau of Internal Revenue, through the Law Division, of the fulfillment of the requirement on the distribution of the saleable condominium units in accordance with the allocation ratio in the JVA. For this purpose, a compliance report of the project indicating the number of units developed/built, the respective CCTs and the party in whose name the corresponding title was issued. (BIR Ruling No. DA-373-2008 dated June 19, 2008) 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