BIR Ruling No. 072-10

September 15, 2010 BIR RULING NO. 072-10 Sec. 27 (D) (5); RR 7-2003; DA-008-04; DA-040-03; DA-009-03; DA-217-99; 166-81 DMCI-Beta Tewet Joint Venture DMCI Plaza Building, 2281 Don Chino Roces Ave. Ext. 1231 Makati City Attention: Joselito C. Hukom Project Manager Gentlemen : This refers to your letter dated March 29, 2010, in behalf of DMCI-BETA TEWET JOINT VENTURE (DMBT Joint Venture, for short),requesting a clarificatory ruling on the tax consequence of the Joint Venture Agreement executed by and among DM Consunji, Inc.,Beta Electric Corp.,and Tewet International GmbH & Co. KG, which was formed to undertake the construction of LRT Line 1 North Extension Project-Electro-Mechanical Subsystems (EMS-1) Signaling Package, to wit: aEACcS 1. Whether or not DMBT Joint Venture is subject to corporate tax; 2. Whether or not DMBT Joint Venture is subject to creditable expanded withholding tax under Revenue Regulations 2-98, as amended; and 3. Whether or not DMBT Joint Venture is required to file quarterly and final adjustment return with the BIR; Documents submitted disclosed that DMBT Joint Venture, with TIN 291-755-200-000, is an unincorporated joint venture formed to undertake the construction of LRT Line 1 North Extension Project-Electro-Mechanical Subsystems (EMS-1) Signaling Package; that it is registered with the Bureau of Internal Revenue (BIR) to perform electrical and mechanical work necessary for the project at the construction site as per Certificate of Registration; that it entered into a contract with the Light Rail Transit Authority (LRTA), a government owned and controlled corporation created under Executive Order No. 603; that each co-venturer is designated a particular task, such that DM Consunji, Inc., shall provide onshore services which includes supply of FOC and power cable and project management while BETA Electric Corporation shall provide onshore services which includes installation, post and fastening, other installation materials and activities on site and TEWET International GmbH & Co. KG shall provide signaling equipments and onshore services which includes testing and commissioning, site supervision, warranty and offshore services which includes design engineering, documentation and hardware supply. 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 ),association 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 by and among DM Consunji, BETA Electric Corporation and TEWET International GmbH & Co. KG for the construction of LRT Line 1 North Extension Project (EMS-1 Signaling Package) 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. However, the co-venturers 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.) As provided by Section 22 (B) of the Tax Code of 1997, 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 Nos. 6-2001 and 12-2001. acHDTE 3.) The joint venture being exempt from corporate income tax is not required to file quarterly and final adjustment 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 be considered null and void. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue