BIR Ruling [DA-174-01]

September 26, 2001 BIR RULING [DA-174-01] 22 (B); RR 2-98; 52 (A) & 76; RR 7-95; 113 (A) BIR Rulings Nos. DA-021-2001; DA-015-2001; 002-97 Ninoy Aquino International Airport IPT3 Consortium Siemens, Inc. and Fuji-Haya Electric Construction Corporation Andrews Avenue, Villamor Air Base Pasay City Gentlemen : This refers to your letter dated July 6, 2001 stating that Ninoy Aquino Airport IPT3 Consortium is an entity composed of Siemens, Inc. and Fuji-Haya Electric Construction Corporation (Fuji-Haya), both corporations duly organized and existing under the laws of the Philippines; that said Consortium is a joint venture formed by the above-named parties solely for the purpose of undertaking the construction of a part of Ninoy Aquino International Airport (NAIA) International Passenger Terminal III Project ("Project") at Pasay City; that the Consortium is not and will not be registered with the Securities and Exchange Commission (SEC); that the Consortium will open a separate bank account into which payments from the Project will be deposited; that in the course of the Project, each Consortium member enters into separate contracts with third parties and/or suppliers of goods or services for its own scope of work; that the supplier of such goods or services to the particular consortium member will issue its own VAT-registered invoice and/or VAT-registered official receipts to and in the name of the Consortium member in its own right and not as member of the Consortium; that the VAT invoice and/or official receipts will not indicate or make reference to the Consortium as the purchaser of the goods and/or services; that in turn, the Consortium member invoices or issue its own VAT-registered invoice/official receipt to the Consortium for its sale of goods and/or services to the Consortium. In this regard, you now request for a ruling relative to the following issues: 1. That the Consortium, having been found for the purpose of undertaking construction projects, is not subject to corporate income tax since it does not fall within the definition of a "corporation" under Section 22(B) of the Tax Code; 2. That since the Consortium is not subject to corporate tax, the gross payments to the Consortium under the Project shall also not be subject to the 1% creditable expanded withholding tax under Section 2.57.2 (E) of Revenue Regulations No. 2-98; 3. That being exempt from corporate income tax, the Consortium is not required to file quarterly and final adjustment returns with the BIR, and in lieu thereof, it will only be required to file an annual information return; 4. The Consortium may register as VAT entity-taxpayer under the VAT System and maintain its own books of accounts and print its own invoices and receipts; and 5. That the Consortium may claim as VAT input credit against its output VAT the VAT paid on its purchases of goods or services from the Consortium member evidenced by VAT registered invoices. In reply, please be informed that: 1. Pursuant to Section 22(B) of the Tax Code of 1997, the term corporation includes partnership, 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 or consortium agreement under a service contract with the Government. Considering that the joint venture or consortium formed by and between Siemens, Inc. and Fuji-Haya for the purpose of undertaking the construction of the Project is excluded from the aforequoted definition of taxable corporation, this Office is of the opinion as it hereby holds that the joint venture is not subject to the regular corporate income tax under Section 27(A) of the Tax Code of 1997. The co-venturers, nonetheless, are liable for the payment of the corporate income tax on their respective earnings derived from the above-mentioned construction project. 2. Since the Consortium is exempt from corporate income tax, the gross payments to said Consortium shall not be subject to the 1% (now 2%) creditable withholding tax under Section 2.57.2 (E) of Revenue Regulations No. 2-98, as amended by Revenue Regulation No. 6-2001, as amended. However, as public works contractor, the joint venture shall be subject to the 8.5% withholding on VAT under Section 114(C) of the Tax Code of 1997, creditable against the 10% value-added tax imposed upon it under Section 108(A) of the same Code. 3. The Consortium will only be required to file an annual information return in lieu of the quarterly and final corporate income tax returns, because under Sections 52(A) and 76, both of the Tax Code of 1997, only corporations subject to tax are required to file said returns. (BIR Ruling No. DA-021-2001 dated February 16, 2001) 4. As an unincorporated non-taxable joint venture, the Consortium may register as a VAT taxpayer with the appropriate Revenue District Officer where the principal place of business is located. However, you should furnish said Office the registration requirements stated in Revenue Memorandum Order (RMO) No. 54-98. Furthermore, the said Consortium has to maintain and register its own books of accounts and receipts even though it is not a separate entity for income tax purposes. In BIR Ruling No. 307-82 dated December 13, 1982, this Office held that: ". . . a joint venture or consortium was formed for the purpose of undertaking a construction project. . . Moreover, since all corporations, companies, partnerships or persons required by law to pay internal revenue taxes, are required to keep books of accounts pursuant to Section 321 of the Tax Code, as implemented by Revenue Regulations No. V-1, otherwise known as the "Bookkeeping Regulations", the joint venture is, therefore, required to register with this Office the joint venture's books of accounts, invoices and receipts . . ." 5. However, the co-venturers or consortium members shall be subject to the regular corporate income tax on their taxable income during its taxable year respectively derived by them from the aforesaid consortium project. (BIR Ruling No. 18-99 dated February 11, 1999). Gross sales or receipts separately invoiced by them to the supplier of goods or services not covered by the invoice issued by the consortium to the third party shall be subject to the 10% VAT. 6. To enable the consortium to credit against its output VAT the input VAT derived from the separate domestic purchases of goods and services by the consortium members, the invoices and/or receipts issued by the third parties or subcontractors must be issued to the consortium. The invoice and/or official receipt must indicate the purchaser of the goods and/or services as follows: "Sold to (name of consortium member) as member of the _______ Consortium." The VAT-registered invoices must state as follows: "Description of Articles Unit Price Total xxx xxx xxx "For the specific scope of work of (name of consortium member) for the NAIA IPT III Project." The VAT official receipts must state as follows: "Received the amount of ______________ as payment for services to (name of consortium member) as member of the _________________ Consortium for its specific scope of work in the NAIA IPT III Project." In addition, to support the Consortium's input tax credit, the VAT registered invoices and/or receipts issued by the third parties or sub-contractors must comply with the invoicing requirements as provided in Section 113 of the Tax Code of 1997. Any unutilized input VAT of the Consortium cannot be treated and recognized as cost by the different consortium members for income tax purposes. The unapplied input VAT of the Consortium, if any, may, however, be the subject of a tax credit or refund pursuant to Section 4.106-1 of Revenue Regulations 7-95. (BIR Ruling No. 002-97 dated January 14, 1997) 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.) EDMUNDO P. GUEVARA Deputy Commissioner Legal & Inspection Group