China State Construction Engineering Corporation Limited and China Geo-Engineering (Phil.) Corporation-Joint Venture

March 16, 2021 BIR RULING NO. JV-066-21 Sec. 22 (B) of the NIRC; RR No. 14-02; RR No. 10-12; BIR Ruling No. 013-2018 China State Construction Engineering Corporation Limited and China Geo-Engineering (Phil.) Corporation-Joint Venture 8th Flr.,The Biopolis Bldg.,Macapagal Blvd. Barangay 76, 1300, Pasay City, NCR, Fourth District, Philippines Attention: AAA _______________ Gentlemen : This refers to your letter dated October 13, 2020, requesting for a ruling that the joint venture between China State Construction Engineering Corporation Limited and China Geo-Engineering (Phil.) Corporation formed for the purpose of undertaking the Contract Package-2, Design and Build of the Ambal-Simuay River and Rio Grande De Mindanao Flood Control Projects (Cotabato City, Sultan Kudarat and Sultan Mastura and Maguindanao) with Contract Identification No. 19Z00043 ("JV Project") is exempt from the two percent (2%) creditable withholding (CWT) tax pursuant to Revenue Regulations (RR) No. 11-2018. Documents submitted disclosed that China State Construction Engineering Corporation Limited and China Geo-Engineering (Phil.) Corporation-Joint Venture ("JV"),with Taxpayer Identification Number (TIN) 000-000-000-00000 is an unincorporated joint venture formed to undertake the construction of the JV Project; that the JV is also registered with the Philippine Contractors Accreditation Board (PCAB) with Special Contractor's License No. SL1-SN-21811 originally issued on September 01, 2020; that on the other hand, China State Construction Engineering Corporation Limited (TIN: 000-000-000-0000) is engaged in Construction of Buildings; that it is also registered with the PCAB with Contractor's License No. SLN1-SN-21814 originally issued on September 01, 2020; that China Geo-Engineering (Phil.) Corporation (TIN: 000-000-000-000) is engaged in Building of Constructions or Parts, Civil Engineering; that it is also registered with the PCAB with Contractor's License No. SLN1-SN-21714 originally issued on August 04, 2020; that the JV entered into a contract with the Government of the Republic of the Philippines through the Department of Public Works and Highways (DPWH) for the construction and completion of the afore-mentioned JV Project; and that the herein co-venturers have mutually agreed to contribute to the joint venture all the necessary capital equipment's technical personnel, management supervision, and other efforts and resources for the proper execution or implementation of the project and to extend to each other their respective fullest cooperation and best efforts towards profitable execution and success of the project in accordance with approved plans and specifications to complete the same based on the approved work schedule; and that the co-venturers agreed that their respective proportionate share in the profits and losses of the Joint Venture shall be Sixty-six and sixty-six percent (66.66%) for China State Construction Engineering Corporation Limited and Thirty-three and thirty-four percent (33.34%) for China Geo-Engineering (Phil.) Corporation. ICHDca In reply, please be informed that pursuant to Section 22 (B) of the National Internal Revenue Code (Tax Code) of 1997, as amended, the term "corporation" shall include partnerships, no matter how created or organized, joint stock companies, joint accounts ( cuentas en participacion ),association or insurance companies, but does not include general professional partnerships and joint venture of 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. Likewise, Section 2.57.5 of RR No. 2-98, as amended by RR No. 11-2018 dated January 31, 2018, provides that the withholding of CWT shall not apply to income payments made to joint ventures or construction formed for the purpose of undertaking construction projects or engaging in petroleum, coal, geothermal & other energy operations pursuant to an operating or consortium agreement under a service contract with the Government. Furthermore, Section 3 of RR No. 10-2012 dated June 1, 2012 provides, to wit: "SEC. 3. Joint Ventures Not Taxable as Corporations. A joint venture or consortium formed for the purpose of undertaking construction projects which is not considered as corporation under Section 22 of the N IR C of 1997 as amended, should be: (1) for the undertaking of a construction project; (2) should involve joining or pooling of resources by licensed local contractors; that is, licensed as general contractor by the Philippine Contractors Accreditation Board (PCAB) of the Department of Trade and Industry (DTI); (3) the 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). xxx xxx xxx Absent any one of 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 members 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." Such being the case, China State Construction Engineering Corporation Limited/China Geo-Engineering (Phil.) Corporation-Joint Venture formed for the purpose of undertaking the Contract Package-2, Design and Build of the Ambal-Simuay River and Rio Grande De Mindanao Flood Control Projects (Cotabato City, Sultan Kudarat and Sultan Mastura and Maguindanao) with Contract Identification No. 19Z00043 with the DPWH is considered as a joint venture not taxable as a corporation for complying with the conditions provided in RR No. 10-2012, i.e. , (1) the JV is for the undertaking of construction project; (2) the JV involves joining or pooling of resources by licensed local contractors (licensed as general contractor by the PCAB); (3) the local contractors are engaged in construction business; and (4) the JV itself is duly licensed by PCAB; and therefore not subject to the corporate income tax under Section 27 (A) of the Tax Code of 1997, as amended. TCAScE Furthermore, the gross payments to the joint venture on the JV Project are likewise, not subject to the two percent (2%) CWT prescribed under Section 57 (B) of the same Code, as implemented by RR No. 2-98, as amended by RR No. 14-2002. (Section 4 of RR No. 14-2002 dated September 9, 2002) The herein joint venture, being exempt from corporate income tax, is not required to file quarterly and final adjustment returns but the co-venturers are separately subject to the regular corporate income tax imposed under Section 27 (A) of the Tax Code of 1997, as amended, on their taxable income during each taxable year respectively derived by them from the aforesaid construction project. (BIR Ruling No. 13-2018 dated January 10, 2018). It should be emphasized that the respective net income of the co-venturers derived from the joint venture project is subject to the CWT imposed under Section 57 of the Tax Code of 1997, as amended, and implemented by RR No. 2-98, as amended. Thus, before China State Construction Engineering Corporation Limited/China Geo-Engineering (Phil.) Corporation-Joint Venture distributes the net income of the co-venturers, pursuant to their agreed profits/income sharing, it shall withhold the tax based on the net income of its co-venturers. (BIR Ruling No. 13-2018 dated January 10, 2018) Finally, the co-venturers are 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 they are registered as taxpayers. (Section 4 of RR No. 10-2012) 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, (SGD.) CAESAR R. DULAY Commissioner of Internal Revenue