Joint Venture-taxability.pptx

Taxation of unincorporated Joint ventures

JV CONSTRUCTION • INCOME TAX – Unregistered JV engaged in construction is treated as a “pass through” entity: • It is not a taxable legal entity subject to corporate income tax. • It shall not register as an income taxpayer for income tax purposes, but must register as a withholding agent with the BIR. • It is not required to keep books of accounts and issue invoices and receipts. • It shall not file any corporate income tax return. • It must withhold income taxes on payments prescribed by law.

– Joint Venture Partners are the ones liable to income tax and each partner shall report its share in the JV profit during the year.

BIR Ruling • BIR Ruling No. 475-2014 dated November 26, 2014 A JV for construction is not taxable as a corporation if it complies with the conditions prescribed under RR No. 10-2012

Rulings prior to RR No. 10-2012 JVs are not taxable as corporations as long as it is formed for the purpose of undertaking construction projects, regardless if one party (venturer) functions only as the provider of capital. It is only the members (co-venturers) who are subject to tax in their individual capacities upon their sale of their share in the developed properties.

Upon effectivity of RR No. 10-2012 (dated June 1, 2012) and subsequent BIR Rulings JVs or consortia formed for the purpose of undertaking construction projects will not be considered as taxable corporations, provided ALL conditions enumerated in the RR are present/complied with.

BIR Ruling

Not Qualified for Tax Exemption (BIR Ruling No. 263-13)  Mere suppliers of goods, services or capital to a construction project.  JV wherein only land was contributed by one of the coventurers shall not qualify for exemption

BIR compliance requirements of taxable JVs Upon effectivity of RR No. 10-2012 

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The JV is required to register with the BIR and secure its own TIN (Section 236 of the Tax Code of 1997) The JV is constituted as withholding agent of the BIR (Sec 2.57 of RR No. 298 as amended) The JV is required to maintain separate books of accounts (Section 232 of the Tax Code of 1997 and Sec. 3 of RR No. V-1) The JV is required to issue its own official receipts/invoices for the sale of real properties (Section 237 of the Tax Code of 1997 and BIR Ruling DA-(JV-039) 379-08) The JV is required to file its own tax returns (Sections 52 and 114 of the Tax Code of 1997)

Taxation of JVs Upon Effectivity of RR No. 10-2012 Requisites for non-taxable JVs under RR No. 10-2012 (dated June 1, 2012): 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). Note: Absent any one of the foregoing requirements, the JV or consortium formed for the purpose of undertaking construction projects shall be considered as a taxable corporation.

Alfalfa Construction/Lucky A Construction-JV

Facts: 1.The Co-venturers: 1.Alfalfa Construction -Sole Proprietor -Licensed Local Contractor -Engaged in Construction business -Bidder

2.Lucky A Construction Corporation -Licensed Local Contractor -Engaged in Construction business -Bidder

2.The JV is for the undertaking a construction project DPWH-CAR ROAD UPGRADING PROJECT(UBAO-TAANG ROAD, IFUGAO) 3.The Joint Venture itself is duly licensed by the Philippine Contractors Accreditation Board (PCAB)

4.The JV has secured its own TIN.

5. BIR-IFUGAO refuse to enroll the JV for EFPS.

Queries: