Exemption from 3% Contractor's Tax — Joint Venture

February 8, 1980 BIR RULING NO. 020-80 Law Offices of V. E. Del Rosario & Associates Rosadel Building 1011 Metropolitan Avenue Makati, Metro Manila Attention: Mr . Abundio J . Macaranas Gentlemen : This refers to your letter dated November 12, 1979 requesting legal opinion on whether (a) the joint venture partnership of the Construction Development Corporation of the Philippines (CDCP) and Toyo Construction Co. (Toyo) is subject to the 3% contractor's tax on its gross receipts received from the Philippine Sinter Corporation; (b) the joint venture is subject to corporate income [tax on its net income; and (c) the profit of the joint] venture distributed to the individual partners is subject to tax. cdt It is represented that the joint venture was formed purposely to undertake the construction of the port facilities of the Philippine Sinter Corporation, a preferred pioneer enterprise registered with the Board of Investments under Republic Act No. 5186. The construction covers the period from October 1974 to December 1976. In reply, I have the honor to inform you as follows: 1. Section 205(16) of the Tax Code of 1977, before its amendment by P.D. No. 1457 effective on June 11, 1978, provides: "Sec. 205. Contractors, proprietors or operators of dockyards, and others . A contractor's tax of three per centum of the gross receipts is hereby imposed on the following: xxx xxx xxx "(16) Business agents and other independent contractors except persons, associations and corporations under contract for embroidery and apparel for export, as well as their agents and contractors and except gross receipts of or from a pioneer industry registered with the Board of Investment under the provisions of Republic Act 5186; and " (Emphasis ours) Pursuant to the above-quoted provision, the gross receipts derived by the joint venture from the Philippine Sinter Corporation a BOI-registered enterprise under Republic Act No. 5186 during the period from October 1974 to December 1976, is not subject to the 3% contractor's tax. 2. Pursuant to Section 84(b) [now Section 20(b)] of the Tax Code of 1977, as amended by P.D. No. 929, the term "corporation" does not include "a joint venture formed for the purpose of undertaking construction projects." P.D. No. 929 took effect beginning with calendar year 1976. In other words, a joint venture formed for the purpose of undertaking construction project is not subject to the corporate income tax beginning with calendar year 1976. Such being the case, the joint venture of CDCP and Toyo is subject to income tax on its net income for the period from October 1974 up to December 1975. It is exempt from income tax for the year 1976. 3. The individual partners to the joint venture, namely CDCP and Toyo, are liable for the payment of the corporate income tax on the profits distributed to them by the joint venture. This income tax liability of the partners covers the entire period of construction from October 1974 to December 1976. Very truly yours, RUBEN B. ANCHETA Acting Commissioner