Exemption from Income Tax and Expanded Withholding Tax on Income Payments

May 29, 1990 BIR RULING NO. 107-90 24 115-86 107-90 Gentlemen : This refers to your letters dated June 26, 1989 and February 20, 1990 requesting a ruling that the Joint Venture formed by your group for the construction of the Angat Dam Transmission Tunnel No. 3 for the Metropolitan Waterworks and Sewerage System (MWSS) is exempt from income tax and consequently from the expanded withholding tax on income payments derived from such undertaking. aisadc It appears from the facts represented in your letters and their enclosures that Atlantic Gulf & Pacific Co. of Manila, Hydro Resources Contractors Corporation, Marubeni Corporation and Tekken Construction Company, Ltd. formed a Joint Venture specifically for a common desire to prequalify to bid, to participate in the bidding, and execute jointly the construction of a transmission tunnel about 4 meters in diameter and 7 kilometers long, including intake and outlet structures otherwise known as Package II of the Angat Water Supply Optimization Project of the MWSS; that the joint venture agreement was made and executed on April 11, 1989 and was granted a Special License Certificate No. JU-89-030 by the Philippine Contractors Accreditation Board on April 24, 1989; that the joint venture submitted its application for qualification and was informed by the MWSS on October 3, 1988 that it is qualified to bid for the above subject contract package; that in subsequent bidding conducted on January 26, 1989, the joint venture submitted the lowest and for package II and was informed by the MWSS that the award of Contract No. T-3 for Package II has been approved in its favor: and that Notice to Proceed on the work was issued on May 19, 1989 and its contract with MWSS was made and entered on May 22, 1989 for the construction of the Angat Dam Transmission Tunnel No. 3 (Contract No. T-3) with the amount of P307,661,338.30 as the consideration thereof. In reply, I have the honor to inform you that the joint venture entered into by and among Atlantic Gulf & Pacific Company of Manila, Hydro Resources Contractors Corporation, Marubeni Corporation and Tekken Construction Company, Ltd. for the purpose of undertaking a construction project, i.e., the construction of the Angat Transmission Tunnel No. 3 or Package II of the Angat Water Supply Optimization Project of the MWSS, is exempt from income tax, pursuant to Sections 20(b) and 24, both of the Tax Code. For the same reason, gross payments to the joint venture from the MWSS are not likewise subject to the expanded withholding tax prescribed under Section 50(b) of the Tax Code, as amended by P.D. No. 1351 and its implementing regulations. However, each of the venturers is liable for the payment of the corporate income tax imposed under Sections 24 and 25 of the Tax Code, on their respective earnings derived from the above-mentioned construction project. Very truly yours, (SGD.) JOSE U. ONG Commissioner