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
CD Technologies Asia, Inc. © 2022 cdasiaonline.com
 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
CD Technologies Asia, Inc. © 2022 cdasiaonline.com
 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:
CD Technologies Asia, Inc. © 2022 cdasiaonline.com
 "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
CD Technologies Asia, Inc. © 2022 cdasiaonline.com
 Legal Service

CD Technologies Asia, Inc. © 2022 cdasiaonline.com