VAT Ruling No. 033-99

March 18, 1999 VAT RULING NO. 033-99 Secs. 57 (B) 105 000-00 033-99 Hooven Philippines, Inc . H Floor Strata 200 Bldg. Emerald Avenue, Pasig City Attention: Mr . Herbert S . Dee Jr . Chairman of the Board and President Gentlemen : This refers to your letter dated 2 March 1999 stating that Hooven Philippines, Inc. (Hooven) entered into a Joint Project Agreement with Benson Wall Systems Philippines, Inc. (Benson) for the supply, fabrication and assembly of curtain walling and for the site installation of curtain walling for the PB Com Tower, a construction project being undertaken by the principal contractor, Samsung Construction Company Philippines, Inc. (the Project). Under the Project Agreement, Hooven and Benson will apportion all the works in the Project and will be paid in separate fixed lump sum amounts. LibLex You are therefore requesting confirmation of your opinion that 1) the Joint Project does not constitute a joint venture taxable as a separate corporate entity under Section 22(B) of the Tax Code of 1997 for the reasons that Hooven and Benson are not infusing any investment or capital to the Joint Project; that there are no profit or loss sharing arrangement but instead all costs and expenses are the separate responsibility of each of the parties; that the contract price, at the outset, is separately fixed in lump sum amounts for each of the parties to the Project so that separate accounting for income and expenses will immediately be maintained in each party's respective books of accounts; and 2) not being a joint venture taxable as a separate corporate entity, the parties to the Joint Project will be separately subject to the 1% Expanded Withholding Tax and to the 10% Value-Added Tax. In reply, please be advised that your opinion is hereby confirmed. To constitute a "joint venture" certain factors are essential, namely: (a) each party to the venture must make a contribution, not necessarily of capital, but by way of services, skill, knowledge, material or money; (b) profits must be shared among the parties; (c) there must be a joint proprietary interest and right of mutual control over the subject matter of the enterprise; (d) usually, there is single business transaction rather than general or continuous transactions. (BIR Ruling No. 187-82 dated June 3, 1982). Also a joint venture is created when two corporations, while registered and operating separately, were placed under one sole management which operated the business affairs of said companies as though they constituted a single entity thereby obtaining substantial economy and profits in the operation (Collector vs. Batangas Transportation et. al. 102 Phil. 822) Under the Joint Project Agreement, Hooven and Benson have not been constituted as a single entity but are separate and distinct firms; that there is a clear apportionment of work under the project, each corporation managing its own allocated tasks and receiving individually fees in accordance with the work performed as defined in the project agreement; that there is no contribution to a common fund, each corporation paying for its own expense; and that the contract price is separately fixed in lump sum amounts for each party to the Project such that separate accounting for income and expenses will be maintained in each party's respective books of accounts. cdll Such being the case, the Project Agreement between Hooven and Benson is not a joint venture subject to corporate income tax. Accordingly, Hooven and Benson will be separately subject to the 1% Expanded Withholding Tax and to the 10% VAT under Sections 57(B) and 105, respectively, of the Tax Code of 1997. Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner Legal and Enforcement Group