[cs_content][cs_element_section _id=”1″ ][cs_element_layout_row _id=”2″ ][cs_element_layout_column _id=”3″ ][cs_element_text _id=”4″ ][cs_content_seo]TAX COMPLIANCE GUIDE – JOINT VENTURE OR CONSORTIUM
Researched and summarized by easantoscpa.com | ptabcp.com | This is privileged communication
\n\n[/cs_content_seo][/cs_element_layout_column][/cs_element_layout_row][/cs_element_section][cs_element_section _id=”5″ ][cs_element_layout_row _id=”6″ ][cs_element_layout_column _id=”7″ ][cs_element_text _id=”8″ ][cs_content_seo]A joint venture is an association of persons or companies jointly undertaking some commercial enterprise; generally, all contribute assets and share risks which requires a community of interest in the performance of the subject matter, a right to direct and govern the policy in connection therewith, and a duty, which may be altered by agreement to share both in profit and losses. [Kilosbayan v. Guingona, 232 SCRA 110 (1994)]
TAXABILITY OF JOINT VENTURE (JV)
BIR REGISTRATION
JOINT VENTURES are required to register with the BIR pursuant to Section 236 (A) of the NIRC, every person subject to any internal revenue tax shall register with the appropriate Revenue District Office and secure its own Tax Identification Number (TIN).
JV ARE TREATED AS CORPORATIONS WHETHER INCORPORATED OR UNINCORPORATED EXCEPT…
All joint ventures are treated as corporations for income tax purposes whether incorporated or unincorporated, except those formed for the purpose of undertaking construction projects.
Note the NIRC definition of “Corporation”.
Section 22 (B), NIRC. The term ‘corporation’ shall include one person corporations, 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 consortium agreement under a service contract with the Government.
The definition excluded joint venture (JV) or consortium formed for the purpose of undertaking construction projects. Thus, for this purpose JV is not taxable as a corporation.
JOINT VENTURES NOT TAXABLE AS CORPORATIONS
Per Section 3 of RR 10-2012, A joint venture or consortium formed for the purpose of construction projects not considered as corporation under Sec. 22 of the NIRC as amended, should be:
for the undertaking of a construction project; and
should involve joining or pooling of resources by licensed local contracts; that is, licensed as general contractor by the Philippine Contractors Accreditation Board (PCAB) of the Department of Trade and Industry (DTI);
these local contractors are engaged in construction business; and
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)
Joint ventures involving foreign contractors may also be treated as a non-taxable corporation only if the member foreign contractor is covered by
a special license as contractor by the Philippine Contractors Accreditation Board (PCAB) of the Department of Trade and Industry (DTI); and
the construction project is certified by the appropriate Tendering Agency (government office) that the project is a foreign financed / internationally-funded project and that international bidding is allowed under the Bilateral Agreement entered into by and between the Philippine Government and the foreign / international financing institution pursuant to the implementing rules and regulations of Republic Act No. 4566 otherwise known as Contractor’s License Law.
Absent any one (1) the aforesaid requirements, the joint venture or consortium formed for the purpose of undertaking construction projects shall be considered as taxable corporations.
In, addition, the tax-exempt joint venture or consortium as herein defined shall not include those who are mere suppliers of goods, services or capital to a construction project.
The member to a Joint Venture not taxable as a corporation shall each be responsible in reporting and paying appropriate income taxes on their respective share to the joint ventures profit.
JV INCOME TAX AND WITHHOLDING TAXES
In other words, a JV is tax-exempt for income tax purpose if they met all the criteria mentioned above.
Being exempt from income tax, the income of the joint venture shall also be exempt from expanded withholding tax.
Section 2.57.5 (B) (5) of RR 2-98, as amended, exempts JV and consortium which met all the criteria from Withholding.
Per BIR Ruling 176-2014, if the joint venture is not treated as taxable corporation, and therefore, exempt from income tax, it shall not be required to file quarterly and final adjustment returns (i.e., income tax returns)
See BIR Ruling 013-2018
A co-venturer did not comply with any of the requirements
It is important to note that if a member/co-venturer/partner to the JV did not comply with the requirements, the joint venture will not be exempted to income tax.
The failure of the parties to the joint-venture to comply with the requirements of RR 10-2012 shall subject the JV to income tax. Example of a taxable joint venture is where one of the co-venturers is a landowner who does not possess a PCAB license and a real estate developer with PCAB license.
A co-venturer comply with all of the requirements
If the parties to the joint venture complied with all of the above requirements, the joint venture shall not be subject to the corporate income tax under Section 27(A) of the Tax Code, as amended.
JV as Withholding Agent (WA)
The joint venture (even those unincorporated) shall be considered as a government withholding agent pursuant to Sec 2.57 of RR 2-98, as amended. Thus, it shall withhold the appropriate taxes on its income payments to suppliers and employees.
JV VALUE-ADDED TAX
Unless otherwise exempted under existing tax laws and regulations, Joint Venture is subject to 12% VAT. Thus, it is required to file its VAT returns and comply with VAT laws and regulations.
As such, it will pay the Annual Registration Fee (ARF) for the Registration/Renewal for VAT/Non-VAT Taxpayers
KEEPING OF BOOKS OF ACCOUNTS
There is no direct BIR issuance excepting tax-exempt JVs from complying with the keeping of Books of Accounts.
Section 232 of the NIRC, as amended, states that …
All corporations, companies, partnerships or persons required by law to pay internal revenue taxes shall keep and use relevant and appropriate set of bookkeeping records duly authorized by the Secretary of Finance wherein all transactions and results of operations are shown and from which all taxes due the Government may readily and accurately be ascertained and determined any time of the year. Provided, that corporations, companies, partnerships or persons whose gross annual sales, earnings, receipts or output exceed Three Million pesos (P3,000,000), shall have their books of accounts audited and examined yearly by independent Certified Public Accountants and their income tax returns accompanied with a duly accomplished Account Information Form(AIF) which shall contain, among others, information lifted from certified balance sheets, profit and loss statements, schedules listing income-producing properties and the corresponding income therefrom and other relevant statements.
ISSUANCE OF OFFICIAL RECEIPTS
Accordingly, the JV is required to register and issue Official Receipts (OR).
See Sections 113 and 237 of the NIRC, as amended.
MANDATORY ENROLLMENT TO THE EFPS
Per Section 4 of RR 10-2012, All licensed contractors are hereby required to enroll themselves to the BIR’s Electronic Filing and Payment System (EFPS). Enrollment should be done at the RDO where the local contractors are registered as taxpayers.
PROFIT SHARING OF CO-VENTURERS
The co-venturers shall report the profit share as their individual/separate income subject income tax.
Unincorporated Tax-Exempt Joint Venture
Co-Venturer as Individual or Non-Individual Taxpayer
Prior to distribution of profit shares, the JV is required to withhold 2% Creditable Withholding Taxes on contractors pursuant to RR 2-98 which may be used as tax credit by the JV partners/co-venturers against their tax due when filing their ITRs.
Incorporated Joint Venture / JV Taxable as Corporation
Profit shares for Corporations are treated as dividends.
Co-Venturer as Individual Taxpayer
Section 2.57.1 (A)(5) of the RR 2-98, states that the income of an individual in the net income after tax of a joint-venture or consortium taxable as corporation of which he is a member or co-venture – is subject to 10% Final Withholding Tax
Co-Venturer as Non-Individual Taxpayer
Section 27 (D) (4), NIRC, as amended. Intercorporate Dividends. – Dividends received by a domestic corporation shall not be subject to tax under this Title.
Accordingly, Dividends received by a domestic or resident foreign corporation from another domestic corporation are not subject to tax. These dividends are excluded from the taxable income of the recipient.
Hence, the dividend/profit share of Non-Individual co-venturers are exempt from tax.\n\n[/cs_content_seo][cs_element_gap _id=”9″ ][/cs_element_layout_column][cs_element_layout_column _id=”10″ ][cs_element_text _id=”11″ ][cs_content_seo]Frequently Asked Questions on JV or Consortium\n\n[/cs_content_seo][/cs_element_layout_column][cs_element_layout_column _id=”12″ ][cs_element_accordion _id=”13″ ][cs_element_accordion_item _id=”14″ ][cs_content_seo]Is JV subject to Corporate Income Tax?\n\nUpon effectivity of RR 10-2012, JVs or consortia formed for the purpose of undertaking construction projects will not be considered as taxable corporations, provided ALL conditions enumerated in the RR are present/complied with.
Ruling:
The answer to the question is NO. Under Section 22(B) of the Tax Code, the term “corporation” does not include JVs or Consortium formed for the purpose of undertaking construction projects.
This was implemented by RR No. 10-2012 which prescribes certain conditions which must be met for the non-taxability of a JV:
the JV is for the undertaking of a construction project,
the JV should involve joining or pooling of resources by PCAB-licensed local contractors,
the local contractors are engaged in the construction business, and
the JV itself is also registered with the PCAB.
If the JV between the co-venturers complies with all these requirements, the JV is not subject to income tax as a corporation; consequently, income payments to it are not subject to the 2% creditable withholding tax (CWT).
Reference: BIR Ruling 475-2014 dated November 26, 2014
\n\n[/cs_content_seo][cs_element_accordion_item _id=”15″ ][cs_content_seo]Are the co-venturers subject to corporate income tax?\n\nYes.
The co-venturers are separately subject to the regular corporate income tax under Section 27(A) of the Tax Code on their taxable income during each taxable year respectively derived by them from the JV.
The respective net income of the co-venturers derived from the JV is also subject to CWT under Section 57 of the Tax Code.
Before the JV distributes the net income of the co-venturers, it shall withhold the tax due on such net income.
References:
BIR Ruling 475-2014 dated November 26, 2014
BIR Ruling 037-2016 dated January 15, 2016
BIR Ruling 038-2016 dated January 15, 2016\n\n[/cs_content_seo][cs_element_accordion_item _id=”16″ ][cs_content_seo]Are there other administrative requirements on the part of the co-venturers?\n\nYes. The co-venturers are required to enroll themselves to the BIR’s Electronic Filing and Payment System (eFPS). The enrollment should be done at the Revenue District Office (RDO) where they are registered as taxpayers.
References: RR 10-2012\n\n[/cs_content_seo][cs_element_accordion_item _id=”17″ ][cs_content_seo]BIR Compliance for JV\n\n
JV is required to register with the BIR and secure its own TIN (Section 236 of the Tax Code of 1997)
JV is constituted as withholding agent of the BIR (Sec 2.57 of RR No. 2-98 as amended)
JV is required to maintain separate books of accounts (Section 232 of the Tax Code of 1997 and Sec. 3 of RR No. V-1)
JV is required to issue its own official receipts/invoices for the sale of real properties (Section 237 of the Tax Code of 1997 and BIR Ruling DA-(JV-039) 379-08)
JV is required to file its own tax returns (Sections 52 and 114 of the Tax Code of 1997)
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