Exemption of a Joint-Venture Agreement from Contractor's Tax or VAT

July 15, 1988 BIR RULING NO. 326-88 99 000-00 326-88 Gentlemen : This refers to your letter dated December 7, 1987 requesting confirmation of your opinion that you are exempt from the contractor's tax or the value-added tax under a Joint-Venture Agreement you entered with the National Housing Authority (NHA). It appears that, under said agreement, a project known as "POLICEMEN AND TEACHERS HOUSING PROJECT" shall be undertaken on a parcel of land owned by NHA which is located at Pasay City, Metro Manila for sale to the employees of the Department of Education and Culture and of the Integrated National Police; that to realize the project, NHA has to have a developer to handle detailed engineering and architectural designs, site development and housing construction of the completed units; that financing of the project shall be undertaken solely by you from your own resources; that under the terms of agreement, it is agreed that you shall assume the risk of shouldering the cost differential of the project should its cost exceeds certain level; and that you participate in the profits of the project on a pre-determined formula. You also represented in your letter dated July 5, 1988, which bears NHA's concurrence, that, in amplifying Article VI of the agreement concerning your recovery of investment, the recovery is actually your share in the project denominated in the form of per housing unit sold; and that over and above your share is NHA's share which are not spelled out in the agreement. Hence, you stated further that you also bear a risk in the project since despite holding for your own account the cost of the project, you are not entitled to your share if the housing unit, you constructed is not sold for any reason whatsoever. In reply, please be informed that after careful study of your Agreement with NHA, this Office found that the same has the features of a partnership whereby there is contribution to a common fund and sharing of the profits between the parties hence, a joint venture relationship exists and not lease of service. Such being the case, you are not subject to the contractor's tax until December 31, 1987 and to the value-added tax beginning January 1, 1988 insofar as the abovementioned project is concerned. aisadc Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner