Joint venture companiesBy Atty. Rester John Lao Nonato
UNDER Section 22 (B) of the Tax Code, the term ’corporation’ shall include partnerships, no matter how created or organized, joint-stock companies, joint accounts (cuentas en participacion), association, or insurance companies.
However, it doesn’t 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.
’General professional partnerships’ are partnerships formed by persons for the sole purpose of exercising their common profession, no part of the income of which is derived from engaging in any trade or business.
The tax exemption of joint ventures formed for the purpose of construction projects was pursuant to Presidential Decree (PD) No. 929 dated May 2, 1976 to assist local contractors in achieving competitiveness with foreign contractors by pooling their resources in undertaking big construction projects.
Under Revenue Regulations No. 10-2012, a joint venture or consortium formed for the purpose of undertaking construction projects not considered as corporation under Section 22 of the Tax Code should be: (1) for the undertaking of a construction project, (2) should involve joining or pooling of resources by licensed local contracts; that is licenses as general contractor by the Philippine Contractors Accreditation Board of the Department of Trade and Industry; (3) these local contractors are engaged in the construction business; and (4) the joint venture itself must likewise be duly licensed as such by the Philippine Contractors Accreditation Board.
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.
And the construction is also certified by the appropriate tendering agency 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.
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 shall not include those who are mere suppliers of goods, services, or capital of a construction project.
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.
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