BIR Ruling [UN-141-94]

April 19, 1994 BIR RULING [UN-141-94] Sycip, Gorres, Velayo & Co. 6760 Ayala Avenue Makati, Metro Manila Attention: Atty . M . F . A . Balili Tax Division Gentlemen : This refers to your letter dated November 15, 1993, requesting for a ruling and confirmation of your opinion with regard to the income tax and VAT implications of a consortium, as a contractor, undertaking construction project for the Department of Transportation and Communications. cdtech It is represented that Atlas Consolidated Mining and Development Corporation (ACMDC) and Itochu Corporation entered into a Consortium Agreement for the sole purpose of rehabilitation, construction and improvement of the Mactan International Airport in Cebu, Philippines; that the construction project is estimated to take three (3) years to complete; that the consortium is registered with, and was issued a tax identification number (TIN) by the Bureau of Internal Revenue, Revenue District Office No. 60 (Cebu City);that ACMDC subsequently assigned all its rights and obligation under the Consortium Agreement to ACMDC Ventures, Incorporated (AVI);that AVI assumed all of ACMDC's rights and obligation as defined in the Consortium Agreement. 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 the 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 consortium of Itochu Corporation and ACMDC Ventures, Incorporated 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 tax 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 35% corporate income tax based on their taxable income on all sources pursuant to Section 24(a) of the Tax Code, as amended. Moreover, pursuant to Sections 167 and 44 of Revenue Regulations No. 2, the consortium and its co-venturers may recognize the income from the construction project on the basis of the completion method of accounting. Finally, as contractor, the joint venture of Itochu Corporation and ACMDC Ventures, Incorporated 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. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation the same could not be substantiated, then this ruling shall be considered null and void. (BIR Ruling No. 065-94 dated February 18, 1994) cdtech Very truly yours, JAIME M. MAZA Assistant Commissioner (Legal Service)