BIR Ruling No. 187-82

June 3, 1982 BIR RULING NO. 187-82 020-b 020-80 187-82 Philnor Consultants and Planners, Inc. Resource Combines, Inc. DCCD Engineering Corporation Rm. 306 Sunrise Condominium I Ortigas Ave., Greenhills San Juan, Metro Manila Gentlemen : This refers to your letter dated August 11, 1981 requesting reconsideration of B.I.R. Ruling No. 020-b-020-80-47-80 dated October 27, 1980 to the effect that the following consultancy firms, viz: Philnor Consultants and Planners, Inc. (Philnor), DCCD Engineering Corporation (DCCD) and Resource Combines, Inc. (RCI) is rendering management and consultancy services in connection with the procurement, construction, implementation and operation of the Northern Palawan Fisheries Development Project (NPFDP) constituted a joint venture partnership subject to the corporate income tax. It is represented that your letter of July 23, 1980 on which the aforesaid ruling was based did not state the complete facts as the contract for consultancy services between the Philippine Fish Marketing Authority (PFMA) and the consultancy firms was signed only on August 1, 1980. It appears that Philnor, DCCD and RCI will render management and consultancy services in connection with the procurement, construction, implementation and operation of the (NPFDP) in ADB financed project of the Government of the Philippines (GOP), which is represented by the PFMA of the Ministry of Natural Resources; that in order to carry out the project, the Government represented by the PFMA engaged the services of Philnor, DCCD and RCI to assist the PFMA in the implementation and initial operation of the project; that the PFMA considered it advisable and advantageous to it to require the individual consultancy firms to enter into the contract collectively or as one group altho each one of them, has tasks or work to be performed or rendered which are clearly defined, distinct and separate from one another as can be seen in "Annex B" which is the work division or activity breakdown of the consultancy firm; that the rights and obligations of the consultancy firms are likewise distinct and separate from one another except in certain cases where it is expressly stipulated that their obligation and liability are solidary. In reply thereto, I have the honor to inform you that your request is hereby granted. To constitute a "joint venture" certain factors are essential: "(a) each party to the venture must make a contribution, not necessarily of capital, but by way of services, skill, knowledge, material or money; "(b) profits must be shared among the parties; "(c) there must be a joint proprietary interest and right of mutual control over the subject matter of the enterprise; "(d) usually, there is single business transaction rather than a general or continuous transaction." (Words and Phrases, Vol. 23, p. 230) Also a joint venture was created when two corporations while registered and operating separately were placed under one sole management which operated the business affairs of said companies as though they constituted a single entity thereby obtaining substantial economy and profits in the operation. (Collector vs. Batangas Transportation et al. 102 Phil. 822) Considering that Philnor, DCCD and RCI have not been constituted as a single entity but are separate and distinct firms; that there is no common or joint management of the project, each corporation managing its own allocated tasks and receiving individually fees in accordance with the work performed as defined in the detailed work program; that there is no contribution to a common fund, each corporation paying for its own expense; and that the net income of any of the corporation from the project is determined purely by the result of its own operation, the consortium among DCCD Engineering Corporation, Philnor Consultants and Planners, Inc. and Resource Combines, Inc. is not a joint venture subject to corporate income tax. This Office shall revoke this ruling if after investigation, it is ascertained that the facts are different from those upon which said ruling is predicated. Very truly yours, RUBEN B. ANCHETA Acting Commissioner