"Joint Ventures" and Contractor's Tax Clarified

July 16, 1980 BIR RULING NO. 099-80 Development Bank of the Philippines P. O. Box 800, Makati Commercial Center Makati, Metro Manila Attention: Mr . Rafael A . Sison Acting Chairman, DBP and President, Batong Buhay Gold Mines, Inc . Gentlemen : This refers to your letter dated April 16, 1980 stating, among others, that Batong Buhay Gold Mines, Inc. has an undeveloped, and hence non-producing copper mine located in Pasil, Kalinga-Apayao; that Batong Buhay, now in financial difficulties, is heavily indebted to the Development Bank of the Philippines (DBP) and to the National Investment Development Corporation (NIDC); that the total amount of the Government agencies' combined credit exceeds P1.1 billion. So that DBP and NIDC might recover what has been loaned by them to Batong Buhay, the two creditors have taken effective control of Batong Buhay, and they have decided to request Philex Mining Corporation to act as Manager of Batong Buhay so that the latter's copper mine can be developed and placed in profitable production. In the light of the foregoing and on the basis of the terms and conditions of the proposed Employment Agreement to be entered into by and between Batong Buhay and Philex Mining Corporation, you request the expression of our views with regard to the following specific questions: "(a) Will the Employment of PHILEX as Manager of Batong Buhay so that the latter's mine can be developed and placed in production result in a finding by your Bureau that the two companies, Batong Buhay and Philex, have in effect established a joint venture subject to corporate income tax? (b) Will PHILEX be subjected to contractor's tax if it accepts and acts as a Manager of Batong Buhay for the development and beneficiation of the latter's copper mine? (c) If PHILEX is liable to contractor's tax, will the 3% tax be assessed on the entire cost for the development and beneficiation of the mine, or only on the compensation payable by Batong Buhay to Philex as mentioned in Section VI of the CONTRACT?" cdta In reply, I have the honor to inform you as follows: a. Under the foregoing facts and the terms and conditions of the proposed Employment Contract to be entered into by and between Batong Buhay and PHILEX, there is no joint venture established by them. b. For accepting and acting as Manager of Batong Buhay for the development and beneficiation of its copper mine, PHILEX is a contractor, subject to the contractor's fixed tax of P100.00 pursuant to Section 192(1) of the National Internal Revenue Code, as amended, and its gross receipts derived therefrom is subject to the 3% contractor's tax prescribed in Section 205 of the same Code. c. The 3% contractor's tax shall be based on the entire gross receipts of Philex as mentioned in Section VI of the proposed contract. Very truly yours, RUBEN B. ANCHETA Acting Commissioner