Amendments to the DAO 14-3, S. 2014 Otherwise Known as the Implementing Rules and Regulations of R.A. No. 10642

July 12, 2013 BIR RULING NO. 263-13 RR 10-2012; 00-000 Dalaya Construction and Development Corporation 77 West Avenue, Quezon City Attention: Mr. Rogelio B. Urbina President Gentlemen : This refers to your letter dated March 31, 2009 requesting for exemption from the payment of capital gains tax, value-added tax, and the corresponding documentary stamp tax relative to the transfer by Sandra Z. Rovero Cox, as successor-in-interest of the late Tranquilino S. Rovero, of several condominium units described as Units RT-101, RT-102, RT-103, RT-104, RT-105, RT-305, RT-313 covered by Condominium Certificates of Title (CCT) Nos. 1948, 1949, 1950, 1951, 1952, 1973 and 1981, respectively, to Dalaya Construction and Development Corporation (DALAYA) as its share in the Joint Venture Agreement (JVA). It is represented that the late Tranquilino S. Rovero and DALAYA executed a JVA on October 9, 1989 for the construction of a Condominium Building on the former's property located at 77 West Avenue, Quezon City, covered by TCT No. RT-2448(209902)(PR-16063); that while construction was on-going, Tranquilino S. Rovero died on December 5, 1991 and shortly thereafter, the construction stopped due to legal constraints; that on February 29, 1992, an affidavit of Self-Adjudication was executed by Sandra Z. Rovero Cox as the sole and legitimate child of the late Tranquilino S. Rovero and adjudicated to herself the entire estate of the deceased; that the said Affidavit of Self-Adjudication was published for three (3) consecutive weeks in Malaya dated March 3, 10, and 17, 1992; that on October 3, 1995, Sandra Z. Rovero Cox as the sole and successor-in-interest of the late Tranquilino S. Rovero entered into a Memorandum of Agreement (MOA) with DALAYA for the resumption of the construction of the condominium project known as the Rovero Tower which was the subject of an action for Rescission of Contract and Damages docketed as Civil Case No. Q-97-32980, Branch 80 of the Regional Trial Court of Quezon City; that the construction of the condominium building had only reached the third floor with two (2) basement parking areas with liveable finished units at the ground, second and third floors; that in order to put an end to the litigation and for the mutual benefit of herein parties, they have decided to liquidate the joint venture project and to share between themselves condominium units in the unfinished building; that DALAYA has offered to buy all titles, rights and interests of Sandra Z. Rovero Cox for Php14,957,100.00, broken down as follows: CAIaDT Unit No. Floor Area Price/Values 303 88.30 2,112,185.75 304 75.75 1,811,982.42 306 76.05 1,819,158.59 307 53.00 1,267,789.68 308 43.35 1,036,956.28 309 43.35 1,036,956.28 310 43.35 1,036,956.28 311 43.35 1,036,956.00 312 43.35 1,036,956.00 314 76.06 1,816,397.80 315 40.25 962,804.92 that on January 30, 2009, the parties executed a Compromise Agreement wherein as their share in the joint venture project, DALAYA will own among others, condominium units at the ground floor Units RT-101, RT-102, RT-103, RT-104 and RT-105 covered by CCT Nos. 1948, 1949, 1950, 1951 and 1952, respectively; that on February 2, 2009, two (2) Deeds of Assignment were executed by Sandra Z. Rovero Cox, as Assignor, and DALAYA, as Assignee, whereby the former in the first Deed of Assignment unconditionally and absolutely transferred and conveyed the aforesaid units, mentioned in the Compromise Agreement, i.e. , Units RT-101, RT-102, RT-103, RT-104 and RT-105, as its share in the JVA, in favour of the latter; and that in the second Deed of Assignment, the same parties amended their sharing agreement by including Units RT-305 and 313 covered by CCT Nos. 1973 and 1981, respectively, as part of DALAYA's share in the JVA. In reply thereto, please be informed that Section 3 of Revenue Regulations No. 10-2012, implementing Section 22 (B) of the Tax Code of 1997, provides that "SEC. 3. Joint Ventures Not Taxable as Corporations . A joint venture or consortium formed for the purpose of undertaking construction projects which is not considered as corporation under Section 22 of the NIRC of 1997 as amended, should be: (1) for the undertaking of a construction project; and (2) should involve joining or pooling of resources by licensed local contractors that is, licensed as general contractor by the Philippine Contractors Accreditation Board (PCAB) of the Department of Trade and Industry (DTI); (3) the local contractors are engaged in construction business; and ICacDE (4) the Joint Venture itself must likewise be duly licensed as such by the Philippine Contractors Accreditation Board (PCAB) of the Department of Trade and Industry (DTI)." Indubitably, to be a tax exempt Joint Venture undertaking a construction project, it must satisfy or meet the above conditions. Thus, the Joint Venture established by Dalaya and Sandra Z. Rovero Cox, as successor-in-interest the late Tranquilino S. Rovero, is not covered by Section 3 of Revenue Regulations No. 10-2012 and, as such, is a taxable as a corporation. Based on the foregoing, the estate tax due in relation to the property of the late Tranquilino S. Rovero located at 77 West Avenue, Quezon City, covered by TCT No. RT-2448(209902)(PR-16063), should be settled for the transmission of the property in the name of Sandra Z. Rovero Cox. The transfer of the subject condominium units from the joint venture to Sandra Z. Rovero Cox shall be subject to ordinary income tax on the part of Sandra Z. Rovero Cox based on the current fair market value of the condominium units she received less the fair market value of the property contributed to the joint venture as of the moment of death the late Tranquilino S. Rovero, considering that she acquired the property by inheritance. The transfer of the subject condominium units from the joint venture to DALAYA shall be subject to ordinary income tax on the part of DALAYA based on the current fair market value of the condominium units it received less the costs it actually, directly and exclusively incurred for the construction of the condominium project. Likewise, their subsequent sale, by themselves directly or indirectly (by trust or agency), of the condominium units received shall be subject to ordinary income tax, creditable withholding tax, value-added tax, and documentary stamp tax. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. HTDcCE Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue