Joint Venture Undertaking General Construction Work is Exempt from the 1% Expanded Withholding Tax

September 30, 1992 BIR RULING NO. 274-92 24, 25 115-86 274-92 RMCC-FEMCO Joint Venture 750 EDSA, Corner Wood St. Pasay, Metro Manila Attention: Mr . Ricardo I . Viacrusis Managing Director Gentlemen : This refers to your letter dated May 20, 1992, in effect, requesting for a ruling that a joint venture undertaking general construction work such as the construction work for the rehabilitation of Calamba-San Pablo City road, is exempt from the 1% expanded withholding tax. llcd It appears that Rocky Mountain Construction Corporation (RMCC),a domestic corporation engaged in general construction business with office address at No. 37 2nd St.,West Tapinac, Olongapo City, and Fisher Engineering & Maintenance Company, Inc. (FEMCO),an American corporation incorporated in the State of Delaware, U.S.A.,and authorized by the Securities and Exchange Commission to do business in the Philippines, have entered into a joint venture agreement on September 27, 1990 for the purpose of participating in the bidding of Contract Package No. 1, for the Rehabilitation of Calamba-San Pablo City road; that having submitted the lowest bid of P203,433,124.80 it was awarded the above-stated contract with July 12, 1991 as the start up date of construction work. In reply, please be informed that pursuant to Section 20 (b) of the Tax Code, the term corporation includes partnerships, no matter how created or organized, joint stock companies, joint accounts (cuentas en participacion), associations or insurance companies, but does not include general professional partnerships and a joint venture or consortium formed for purpose of undertaking construction projects or engaging in petroleum, coal, geothermal and other energy operations pursuant to an operating or consortium agreement under a service contract with the government. In view thereof, it is our opinion that the joint venture of RMCC-FEMCO is not subject to the corporate income tax under Section 24 of the Tax Code. Consequently, gross payments received by said joint venture is not subject to the 1% expanded withholding prescribed by Section 50 (b) of the Tax Code, as amended and implemented by Revenue Regulations No. 6-85 as amended. However, the co-venturers are separately subject to the corporate income tax on their taxable income during each taxable year respectively derived by them from the aforesaid construction project. In the case of RMCC, it is subject to the 35% corporate income tax based on its taxable income from all sources pursuant to Section 24 (a) of the Tax Code; while FEMCO, obviously enjoying the status of a resident foreign corporation doing business in the Philippines, shall be similarly subject to the 35% corporate income tax on its taxable income derived from the same construction project pursuant to Section 25 (a) of the same Code. (BIR Ruling No. 115-86) Moreover, as contractor, the joint venture RMCC-FEMCO shall be subject to the 10% value added tax pursuant to Section 102 (a) of the Tax Code, as amended by Executive Order No. 273. Very truly yours, JOSE U. ONG Commissioner of Internal Revenue