BIR Ruling No. 169-83

September 29, 1983 BIR RULING NO. 169-83 S i r : This refers to your letter dated September 14, 1982 requesting information as to what kinds of taxes you are liable under the following set of facts: "We are co-owners of a certain real property with an area of one hectare, more or less. We intend to form a partnership among ourselves, together with a capitalist who could help develop the area into a subdivision and manage the sale of the subdivision lots. The proceeds from the sale of lots shall be divided equally, that is 50% to the co-owners of the lot and 50% to the capitalist/ developer-manager. The capitalist/developer-manager shall put up the capital to be used in the development of the subdivision. The agreement shall also provide that the owners of the property shall pay the real estate taxes but internal revenue taxes and licenses required to be paid in connection with the operation of the business shall be borne and shared equally 50-50 by the capitalist/developer-manager and the property owners. However, the capitalist/ developer-manager who would contract an outsider to develop the area, shall alone be liable to the expanded withholding tax if any on income payments to the contractor developer. In reply, pleased be informed that under the foregoing circumstances, the partnership is considered a real estate dealer, subject to the annual fixed tax prescribed in Section 192(3) (aa) of the Tax Code of 1977, as amended, the initial fixed tax of which is P150.00. Moreover, the gains the partnership will derive from the sale of subdivision lots are considered ordinary gains, the same being profits derived from the sale of property held primarily for sale to customers in the ordinary course of trade or business. Accordingly, such gains of the partnership are subject to the ordinary corporate income tax prescribed under Section 24 of the Tax Code, as amended (BIR Ruling 79-81). However, the income payment to the contractor developer is not subject to the expanded withholding tax, the same not being among those enumerated in Revenue Regulations No. 13-78, as amended by Revenue Regulations No. 6-79, implementing Section 53(f) of the Tax Code, as amended. aisadc Very truly yours, (SGD.) RUBEN B. ANCHETA Acting Commissioner Bureau of Internal Revenue