Aranas Consunji & Barleta Law Offices

November 3, 2008 BIR RULING [DA-(JV-039) 379-08] 22 (B); 27; 52; 76; DA-300-2004; DA-141-2004; DA-147-2001; DA-272-2005 Aranas Consunji & Barleta Law Offices Unit 106 G/F Le Metropole Condominium Tordesillas Corner Dela Costa Streets, Salcedo Village, Makati City Attention: Atty. Ma. Louella M. Aranas Gentlemen : This refers to your letter dated October 15, 2008 requesting on behalf of your client, Metrolink Joint Venture ("Metrolink") for confirmation of your opinion that: 1. The Joint Venture having been formed for undertaking construction project is not subject to corporate income tax since it is not a taxable corporation within the purview of Section 22 (B) of the 1997 Tax Code; 2. Each member of the Joint Venture shall be liable for the payment of their respective corporate income taxes under Sections 27 and 28 of the 1997 Tax Code with respect to their income derived from the Joint Venture project; 3. The Joint Venture members may utilize the amount previously withheld by LRTA as appearing in the Certificate of Withholding Tax Withheld at Source (BIR Form 2307) in proportion to their joint interest in the Joint Venture; 4. Being an unincorporated Joint Venture, it is exempt from filing of an income tax return but is required to file an annual information return; 5. The Joint Venture can maintain its own books of accounts, print official receipts and file its VAT return; 6. The Joint Venture may claim as value-added tax (VAT) input credit against its output VAT, the VAT it will pay on its importations and purchases of goods or services from the joint venture member and third party sub-contractors, which are evidenced by VAT registered invoices and receipts. It is represented that Metrolink Joint Venture is an unincorporated joint venture; that the members of the Joint Venture are J.F. Cancio, Development Engineering & Management Corporation, Engineering and Development Corporation of the Philippines, Filipinas Dravo Corporation, Pertconsult International, Proconsult Engineering Co., TCGI Engineers and Pacific Consultants International (herein referred to as the "co-venturers"); that Metrolink entered into a Consultancy Services and Construction Supervision for Line 1 North Expansion Project with the Light Rail Transit Authority (LRTA), a wholly owned government corporation: that the Joint Venture registered with the Bureau of Internal Revenue (BIR) as a value-added tax (VAT) taxpayer; that in view of its registration, the unincorporated Joint Venture was able to issue a common VAT invoice and official receipts (OR) for all payments made to it by the LRTA; and that each member of the joint venture issues its own VAT invoice and OR to the Joint Venture upon its receipt of its share of the contract price. In reply, please be informed that the unincorporated Joint Venture shall be subject to the following taxes: 1-2. 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. Since the Joint Venture formed by the co-venturers was for the purpose of providing consultancy and construction supervision over the expansion project of the LRTA, the said Joint Venture is not subject to the regular corporate income tax under Section 27 (A) of the Tax Code of 1997. Such was the pronouncement of this office in BIR Ruling No. DA-300-04 dated June 1, 2004, to wit: "In reply, please be informed that pursuant to Section 22(B) of the Tax Code of 1997, the term "corporation" shall include 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 or consortium agreement under a service contract with the Government. Hence, the joint venture of Luis and Associates, Co. and J.C. Marquez, Architect & Consultants to undertake the consultancy services for the Rehabilitation and Upgrading of the Security Plant Complex (SPC) Buildings and Premises and Provision of Space for Cash Management and Operations is not subject to the corporate income tax under Section 27(A) of the Tax Code of 1997 . However, the co-venturers are separately subject to the regular corporate income tax on their taxable income during each." Accordingly, the Joint Venture shall not be subject to income tax imposed under Section 27 (A) of the 1997 Tax Code. However, following the above ruling, the co-venturers shall be subject to the payment of their respective corporate income taxes under Sections 27 and 28 of the Tax Code of 1997 for their income derived from the Joint Venture project. 3. Furthermore, each co-venturer may utilize the amount previously withheld by LRTA as appearing in the Certificate of Withholding Tax Withheld at Source (BIR Form 2307) in proportion to their joint interest in the consortium. In fact, this office had an occasion to rule on the matter in BIR Ruling No. DA-141-04 dated March 29, 2004, viz. : "However, the co-venturers are separately subject to the corporate income taxes prescribed in Section 27(A) of the Tax Code of 1997 on their respective taxable income during each taxable year derived by them from the aforesaid consortium. Thus, each of the members of the consortium may utilize the amount previously withheld by NAPOCOR as appearing in the Certificate of Withholding Tax Withheld at Source (BIR Form 2307) in proportion to their joint interest in the consortium. Accordingly, the corresponding share of each of the member may be claimed as credits against their respective income tax liability on their share in the project." Accordingly, each co-venturer may request from the LRTA for the issuance of the Certificate of Withholding Tax Withheld at Source (BIR Form 2307) in its own name, as member of the Joint Venture, but only in so far as its proportionate interest in the said consortium. 4. Considering that the Joint Venture is not subject to income tax, it shall 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; BIR Ruling No. DA-147-01 dated September 26, 2001) 5. Although the Joint Venture is not a separate entity for income tax purposes, it has to maintain and register its own books of accounts and receipts. This view is pursuant to various BIR Rulings which cited BIR Ruling No. 307-82 dated December 13, 1982, to wit: ". . . 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. . ." 6. Lastly, the joint venture may claim as value-added tax (VAT) input credit against its output VAT, the VAT it will pay on its importations and purchases of goods or services from the co-venturers and third party sub-contractors, which are evidenced by VAT registered invoices and receipts issued to the joint venture. In fact, BIR Ruling No. DA-272-05 dated June 21, 2005; provides that: "In reply, please be informed that to enable the joint venture to credit against its output VAT the input VAT derived from the separate domestic purchases of goods and services by the joint venture 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 co-venturer) as member of the _________ Joint Venture." "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 joint venture/consortium member) for the Procurement and Installation of Equipment for Vessel Traffic Management System." "The VAT official receipts must state as follows: "Received the amount of _____ as payment for services to (name of joint venture/consortium member) as member of the _______ Joint Venture for its specific scope of work in the Procurement and Installation of Equipment for Vessel Traffic Management System Project". DCaSHI Also, in order to support the Joint Venture'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 provided in Section 113 of the Tax Code of 1997. Hence, any unutilized input VAT of the Joint Venture cannot be treated and recognized as cost by the different co-venturers for income tax purposes (BIR Ruling No. DA-147-01 dated September 26, 2001). The unapplied input VAT of the Joint Venture, 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 as represented are different, then this ruling shall be considered null and void. ACcISa Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service