BIR Ruling No. 012-83

February 3, 1983 BIR RULING NO. 012-83 S i r : This refers to your letter dated January 17, 1983 stating that PHESCO, Inc., a duly licensed contractor for general engineering and general buildings, formed a joint venture with P.O. VALDEZ, Inc., also a duly licensed general contractor for general engineering and general buildings, to bid on a big government project; that PHESCO has a 70% equity while P.O. VALDEZ, Inc., has 30%; that the joint venture won the bid and was awarded the contract; and that while the project is on-going, P.O. VALDEZ, Inc., offered to assign, transfer and convey all its rights, interest and participation on the joint venture for the amount of P2.5 million, more or less. In this connection, you request information on the following queries: "(a) How will the amount of the consideration be treated in the books of PHESCO, Inc.? Since the above described transaction is a sale, it is believed that the amount of the consideration or the gain therefrom is not subject to the expanded withholding tax; "(b) Would it be in order if the amount of the consideration or the gain from the sale be entered into the books of account of P.O. VALDEZ, Inc., as a taxable income in the year of sale or during the period covering the payments?" In reply thereto, I have the honor to inform you that the income payments of PHESCO to P.O. VALDEZ, Inc., under the aforementioned transaction, is not one of those enumerated in Revenue Regulations No. 13-78 as amended by Revenue Regulations No. 6-79, or the Expanded Withholding Tax Regulations, implementing Section 53(f) of the Tax Code, as amended. Accordingly, the same is not subject to the expanded withholding tax prescribed therein. If the aforementioned sale is an outright sale the consideration or gain derived therefrom should be entered in the books of account of P.O. VALDEZ, Inc., in the year of sale. However, if it is a sale on installment basis, i.e. the initial payment does not exceed twenty-five (25%) percent of the selling price, then P.O. VALDEZ, Inc., should enter in its books of accounts that proportion of the installment payments actually received in the year which the gross profit realized or to be realized when the property sold is fully paid, bears to the total contract price. Very truly yours, (SGD.) RUBEN B. ANCHETA Acting Commissioner Bureau of Internal Revenue