Taxation of Joint Venture or Consortium for Construction

Revenue Regulations No. 10-2012 dated June 1, 2012 (RR 10-12) entitled “Joint Venture or Consortium Formed For The Purpose of Undertaking Construction Projects and Mandatory Enrollment of Local Contractors in the Electronic Filing and Payment System (EFPS) was issued to define the tax exemptions of contractors for construction projects. This will be effective within 15 days after publication and all existing rules and regulations and other issuances or parts thereof which are inconsistent with the provisions of RR 10-12 are hereby modified, amended or revoked accordingly.

Under Section 22 (B) of the Tax Code, as amended, a taxable corporation is defined as follows:

“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 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.”

From the above definition, a joint venture or consortium formed for the purpose of undertaking construction projects are not treated as a corporation, and as such NOT SUBJECT TO INCOME TAX. It was Presidential Decree No. 929 dated 4 May 1976 that introduced such exemption to assist local contractors in achieving competitiveness with foreign contractors by pooling their resources in undertaking big construction projects.

RR 10-12 sets the requirements for the implementation of tax exemptions on joint ventures undertaking construction projects as follows:

Local joint venture or construction 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 Contractor’s Accreditation Board (PCAB) of the Department of Trade and Industry (DTI);
3. These local contractors are engaged in construction business; and
4. the Joint venture itself must likewise be duly licensed by PCAB of the DTI.

Joint ventures involving foreign contractors, member foreign contractor should be:

1. Covered by special license as contractor by PCAB of the DTI;
2. Construction project is certified appropriate Tendering Agency (government 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 in accordance with republic Act No. 4566 – Contractors’ License law.

Absent one (1) of the requirements would disqualify tax exemption. Joint venture or consortium shall not include mere suppliers of goods or services or capital of construction projects. Tax-exempt joint venture members shall be responsible in reporting and paying appropriate income taxes on their respective share to the joint ventures profit.

Another notable requirement of RR 10-2012 is the mandatory enrollment of local contractors to the BIR electronic filing and payment system (EFPS) before the Revenue District Office (RDO) where they are registered.

Reference:

BIR Revenue Regulations No. 10-2012

Disclaimer: This article is for general conceptual guidance only and is not a substitute for an expert opinion. Please consult your preferred tax and/or legal consultant for the specific details applicable to your circumstances. For comments, you may also please send mail at info(@)taxacctgcenter.ph, or you may post a question at Tax and Accounting Center Forum and participate therein.

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