The 2022 Revised Revenue Code of Trece Martires City

October 7, 2009 BIR RULING [DA-(JV-024) 588-09] 22 (B); DA-247-2001; DA-149-2005 Burgundy Asset Development Corporation 252 Sen. Gil Puyat Avenue Makati City Attention: Mr. Gregg C. Gregonia Vice-President Gentlemen : This refers to your letter dated May 25, 2009 requesting for exemption from the payment of taxes relative to the transfer of 62 condominium units from AIC Realty Corporation to Burgundy Asset Development Corporation ("Burgundy" for brevity). It is represented that AIC Realty Corporation ("AIC") was the original developer of AIC Burgundy Empire Tower (the "Project") located at ADB Avenue corner Sapphire and Garnet Roads, Ortigas Center, Pasig City; that it has already partially constructed the Project up to the 31st floor with 10 basement levels, but the completion is behind schedule due to financial crisis; that because AIC was unable to finish the project, it entered into a joint development agreement with Burgundy to salvage the project; that in consideration for the completion of the project, a number of units were assigned to Burgundy; that the assignment of certain titles to Burgundy is in accordance with the joint development agreement and the latter has not yet earned any gain or income therefrom but simply received a return of their capital expenditures; and that a taxable gain will be realized only when Burgundy sells the said units to third parties. Pursuant to the Joint Development Agreement executed on July 10, 2004 between AIC, as Owner, and Burgundy, as Developer, AIC will contribute a parcel of land situated along ADB Avenue corner Garnet Road, Ortigas Center, Pasig City with an area of 3,764 square meters covered by the Transfer Certificate of Title No. 99519 to the joint venture and Burgundy shall undertake to develop the subject property into a commercial condominium project. Subsequently, on December 16, 2008, a Deed of Assignment was executed between AIC, as Assignor, and Burgundy, as Assignee, whereby the former as the registered owner of various condominium units in AIC Burgundy Empire Tower Building will assign the same to Burgundy pursuant to the Joint Development Agreement executed between the same parties on March 3, 2004 relative to the completion of and the construction of AIC Empire Tower (now known as "AIC-Burgundy Empire Tower Building"). The said assignment is considered as the allocated net saleable area in the joint venture project as a return of contribution made by Burgundy to the Project. IcHSCT In reply, please be informed as follows: 1. The Joint Development Agreement executed between AIC and Burgundy described above is an agreement between the parties for the construction of the unfinished portion of a commercial condominium project which is neither a contract of sale over real property nor an instrument which conveys title to real property. Hence, no income tax or documentary stamp tax (DST) is due upon the execution of the Joint Development Agreement (Section 186 of Revenue Regulations No. 26). However, the notarial acknowledgment on the Joint Development Agreement is subject to the DST on certification pursuant to Section 188 of the 1997 Tax Code, as amended by Republic Act No. 9243. (BIR Ruling No. DA-247-2001 dated November 27, 2001) Section 22 (B) of the 1997 Tax Code, provides: "(B) The term corporation shall include partnerships, no matter how created or organized, joint-stock companies, joint accounts (cuentas en participation) , 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. "General professional partnership" are partnerships formed by persons for the sole purpose of exercising their common profession, no part of the income of which is derived from engaging in any trade or business." From the foregoing definition of a corporation, it is clear that the Joint Development Agreement executed between the parties does not give rise to a taxable joint venture. The parties to a joint venture agreement may file separate income tax returns for their net revenue for the above-mentioned project less their respective proportionate share in the joint venture expenses since the joint venture is not embraced within the meaning of the term "corporation", hence, not subject to the corporate income tax imposed under Section 27 (A) of the 1997 Tax Code. (BIR Ruling No. 002-97 dated January 14, 1997) 2. The transfer of the allocated net saleable area to Burgundy, pursuant to the Deed of Assignment, in accordance with its equity contribution as stipulated in the Joint Development Agreement is not subject to income tax, withholding tax or capital gains tax, since the transfer is without consideration, not in connection with a sale and constitutes mere return of capital. It is to be understood, however, that upon subsequent disposition by AIC and Burgundy under the Joint Development Agreement and Deed of Assignment of the net saleable area allocated to them, the gain that may be realized by them from such sale will be subject to the regular income tax rate provided under Section 27 (A) of the 1997 Tax Code, as amended, and to the creditable withholding tax under Revenue Regulations No. 2-98, as last amended by Revenue Regulations No. 30-2003. Moreover, said sale shall be subject to the documentary stamp tax imposed under Section 196 of the 1997 Tax Code based on the gross selling price or fair market value of the properties whichever is higher. Furthermore, the said sale shall likewise be subject to VAT. (BIR Ruling No. DA-262-2001 dated December 18, 2001) CacEIS 3. The contribution of AIC to the Project in the form of real property and the allocation of the net saleable area between AIC and Burgundy in exchange for their respective contributions, pursuant to the joint development agreement are not subject to the capital gains tax imposed under Section 27 (D) (5) of the 1997 Tax Code, as amended. AIC did not convey or transfer its ownership or interest over its real property when it contributed the aforesaid parcel of land to the joint venture but merely pooled their resources into a common fund. The said contribution constituted their capital contribution to the joint venture project, therefore, such contribution is not a taxable event that will give rise to the payment of regular income tax, creditable withholding tax and capital gains tax because the transfer or conveyance is not in the course of business but a capital contribution. (BIR Ruling No. DA-262-2001 dated November 18, 2001) This exemption applies only to the transfer of 62 condominium units from AIC Realty Corporation to Burgundy Asset Development Corporation, pursuant to the Deed of Assignment dated December 16, 2008. The other payments to be made by AIC Realty Corporation to Burgundy Asset Development Corporation as embodied in the Joint Development Agreement dated July 10, 2004 shall be subject to income tax/expanded withholding 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. Very truly yours, Commissioner of Internal Revenue By: (SGD.) GREGORIO V. CABANTAC Deputy Commissioner Legal and Inspection Group