Tuesday, December 17, 2013

Joint Ventures NOT Taxable as Corporations

In general, Joint Ventures are subject to tax  (taxable joint ventures) as taxable corporations. Joint venture refers to commercial undertaking by two or more persons, differing from a partnership in that it relates to the disposition of a single lot of goods or the completion of a single project.

Exception to general rule, under the NIRC of 1997 stated the Joint Ventures NOT Taxable as Corporations such as:

1.       A joint venture or consortium formed for the purpose of undertaking construction projects.
2.       A joint or consortium for engaging in petroleum, coal, geothermal and other energy operations pursuant to an operating consortium agreement under a service contract with the government.

Section 3 of RR 20-2012 which took effect on June 2012, states that a joint venture or consortium formed for the purpose of undertaking construction projects NOT as considered as corporation under Section 22 of the National Internal Revenue Code (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 contracts; that is, licensed as general contractor by the Philippine Contractors Accreditation Board (PCAB) of the Department of Trade and Industry (DTI).
3.     These local contractors are engaged in construction business; and
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)

In addition, Joint ventures involving foreign contractors may also be treated as  NOT 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. 

If the stated requirements is not complete (all of the requirements should be present), the joint venture consortium formed for the purpose of undertaking construction projects shall be considered as taxable 
corporations. 
 
Besides, mere supplier of goods, services or capital to a construction project are NOT considered as tax-exempt joint venture or consortium.
 
The member to a Joint Venture NOT taxable as corporation shall each be responsible in reporting and paying appropriate income taxes on their respective share to the joint ventures profit. 

For Joint Ventures NOT taxable as corporations or exempt joint ventures, the share in a taxable joint venture's net income is treated as inter-corporate dividend which is generally exempt from income tax. In case of individual venturer, it is subject to 10% final tax. The share in a non-taxable joint venture's net income is subject to corporate income tax or Section 24A, in case of individual co-venturer.

All licensed local contactors are mandated or required to enroll themselves to the Bureau of Internal Revenue’s Electronic Filing and Payment System (EFPS). The enrollment should be done at the Revenue District Office (RDO) where the local contractors are registered as taxpayers. 

References: Section 22(B) of National Internal Revenue Code (NIRC) of 1997; Revenue Regulations No. 10-2012

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