BIR Ruling No. 276-2022

RIUbIRGTHF PHILIPPINES

BUREAU OF INTERNAL REVENUE DEPARIMENT OF FINANCE

Quezon City

2013 Revised Ni.DA"Joint Venture BIR Ruling No. 01 +-2022 Guidelines VAT Ruling No. 0 ;0-03 OT-.276-. 022

JUN 0: 2022

Lot 3. Blk 16, A. Mabini St. Malvar, Batangas APO-UGEC Security Printing Joint Venture LIMA Technology Center

Attention: Mr. Michael Dalumpines

President and Chairman of the Bo. ird APO Production Unit, Ine

President and Chairmaan of the Botrd United Graphic Expression (or) Henry P. Cureg

Gentlemen:

dated January 17. 2022. wherein this Office denied APO-UGEC Security Printing the input value-added tax (VAT) expense or the charging i.gainst cost of the unrecoverable input tax relatir.g to government trans:ietions. Joint Venture's (the "Joint Venture") requests to allew it to (I) t.se the tax credits as evidenced by the creditable w ithholding tax (CWT) certificates is sued in the name of APO Production Unit, Inc. ("APO") and (2) benefit from aliowing the deduction of This refers to your request for reconsideration of Bik Ruling No. 014-2022

LIMA Technology Center. Lipa. Batangas. with Taxpayer Identifi. ation No. formed for the twin purpos: of upgrading APO's security priniing plant in LIMA The Joint Venture has been duly approved by NEDA and is registered as a taxpayer in Expression Corporation (UGE.C) signed a Joint Venture (JV) Ag.eement and formed Revised Guidelines and Procedures for Entering into Joint V enture Agreements between Government and Private Entities issued by the Nati nal Economic and Development Authority in 2013 (NEDA JV Guiculines). The Joint Venture was an unincorporated or contractual joint venture following the proce lures laid out in the Technology Center, Batangas and of operating the si ne as a goirg business concern. It is represented that on November 27. 2014. AP6; and United Graphic

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Under the J\ Agreement, AP shall promote the Joint Venture and offer its services

to clients from the guvernment sector such as the Department of Foreign Affairs (E- Passport-SLA. VIS. . Stickers with Hologram and E-Passpo:t), Department of Budget and Management (Passtori Capturing Machine). Department of Trade and Industry (ICC Stickers). Land Tr.nsportation Ofice (for LTO Validation Stickers) and the Overseas Workers Welfare A iministration (E-Cards)'. When dealing with government clients. the APO discloses that i: is part of the Joint Venture and the perfurmance of its services is made pursuant to and is p: rt of its obligations as a member of the Jsint Venture.

Accordingly when APO receives pay ments from government clients for sales made on behalf of the jc'nt Venture. it i:nmediately remits the same to the latter for proper recording. Consequs ntly. such payments shall be recorded i the Joint Venture's books as revenues and shall t : included in the computation of its gross income for proper matching of revenues and cost : in accordance w ith Philippine Account:ng Standards. The income tax thereof shall be paid by the Joint Venture.

In respect ot V AT. it is represented that UGEC procures raw materials. sells the

same to the Joint V niure at cost, withholds taxes from payiments made to suppliers, and

pays the corresponding VAT on the sale for such raw materials. The Joint Venture then

purchases raw mate "ials from UGEC: at cost: claims the resulting input tax credits. and withholds taxes fron payments made to UGEC on these transactions. Moreover, APO issues VAT invoices for sa es io government clients that prefer to deal only with APO. That being said. inasmuch as A PC made the sales pursuant to its obligations under the JVA and the

expenses in connecti on with these sales were incurred by the Joint Venture and not by APO. the sales are record: 1 in the books oi' the Joint Venture and the VAT is paid by the Joint Venture.

In reply- ple: se be informed that the NEDA JV Guidelines defined a contractual JV as a legal and bindi ig agreement under which the JV Partners shall perform the primary functions and obliga ions under the JV Agreement without foi'ming a JV Company. The JV Partners in this case ean stipulate their relationship. their respective rights and obligations and other provisions th.it they may ceem fit in the JV Agreeinent. In this case. the law on contracts shali govt rn the contractual JV. Thus. contractual JV does not have a legal personality separate 'rom the JV Partners since the Partners are: the ones who are performing the obligations and I ine tions of the Jv.

BIR. In other words. for all legal intents and purposes, the Jciit Venture is the payee of the performing the sale: and marketing 'of the Joint Venture ard all the printing services for amounts received by A"O from its government clients pursuat to the JV Agreement. L:(iEC pursuant to he JV Agreement shall be attributed to the Joint Venture that they formed. The JV Agr enient executed was designed in such a way that APO is the JV party government clients : lthough it is the Joint Venture that records the sale and is liable to the In applying :he concept of ccntractual JVs, the actiyities performed by APO and

Venture may claim tne inutilized CWT certificates in APO's name as tax credits and may In this regard and as will be discussed below, this Office is of the view that the Joint

: Per Affidavit datcd 8 A oril 2022. of Mr. Michael J. Dalumpines. Chairr In and President of APO

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deduct the unrecove -able input VA'T expense or the charging against cost of the input VAT relating to governm: nt transactions

Creditable Withhole'ing Tax

the income it receivs d thereof was declared part of its gross income. evidenced by the Ce tificates ofCW 7 at Source (BIR Form No. 2307). Aiso, it is undisputed that the Joint Ventu e recorded the amount remitted by APC in its books as revenues and Based on tr : slocuments presented. the fact of withholding was established as

collections from gi ve"nment clierts are immediately rernitted to the Joint Venture. Dalumpines. Chairn an and President of APO. fully support: this fact when he stated that: clients are actually pa: ments for the services rendered by the JV, and APO is merely performing its oblig atit ns pursuant to the JV Agreement. This is shown by the fact that Likewise. APO did iot utilize the tax credits related to the transactions it entered into as a member of the Joint Venture. The attached Affidavit dated April 8, 2022 of Mr. Michael J. It also bears stressing that the payments which APO receives from its government

and costs it u cordance witk the Philippine Accounting Standards. niade on b hu!f of the Joint Tenture ("Sales "), A?O remits the same as income n the Joint Venture 's books for proper matching of revenue paynients t. tt:e Joint Yentire and consequently, the Sales are recorded "+. u'hile . P() receives payments from the governnent clients for sales

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pavable. have not bs eu claimed and or applied by APO against its income tax 6.The certi; 'cues of creditahle withholding taxes (CWT) issued to APO

taxpay er who is entit led to use and claim as credit the unutitized CWT. The above s:ateinents are clear recognition on the part of APO that it is not the

more on the substant e r sther than the form?. the Joint Venture tha : is the ultimate beneficiary of the CWT Certificates. This explanation can be based on the d oct rine that substance prevails over form such that in a conflict between form and substance. :he former must necessarily yietd to the tatter. Tax laws concern itself behaif of the Joint V.nture on the transactions subject of the C:WT Certificates. It is actually Thus. while the payee in said CWT Certificates is APO, the latter merely acted on

against the income t ix payable of the joint venture when the: Supreme Court upheld the two (2) bus compani: s. which were deemed to have formed an unincorporated joint venture. assessment of the Cc Het: tor of Internat Revenue. Batangas Trausport.tion Company (GR No. L-9692, Janua.y 6, 1958). in that case. the Supreme Court impl:ed!y allowed the joint venture to credit t'e income taxes paid by the The present : ituation is no difterent from that in Coliector of Internal Revenue vs.

: VAT Ruling No. 030-0 . d :ted June 23. 20(3

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amount withheld as fuly supported by certificates of creditat le withholding tax. Venture may use th tax credits evidenced by the CWTs Certificates issued in the name of APO. However, the ax credits to be applied by the Joint Venture shall be limited to the total Based on th above-discussions, this Office believes and, thus, holds that the Joint

Input VAT

government clients to APO. This is in accordance with Section 114 (C of Revenue Regulations (RR) N.16-2005, as amended by RR No.13-2018. to wit With regard to the input VAT, 5% final VAT is withheld on payments made by

Payments t.. Non-Residents. "SEC.+.11+-2 Withholding of VAT on Government Money Payments and

beginning Jamuary 1, 2021. the VAT withholding system under this subsection hail shifi from final to a creditable systeni:xxx xxx xxx are subjectothe value-added tax imposed in Sections 106 and 108 of this Code, dedut imd withhold the value-added tax imposed in Sections 106 and 108 of his Code, deduct and withhold a final value-added tax at the rate of five percent (5%) of the gross payment thereof: provided, that of its political subdivisions. instrumentalities or agencies, including governmen-oned or -controlled corporations (GOCCs) shall, before making pay nent on account ofeach purchase of goods and services which (a) Vithholding of Value-Added Tax. - The Government or any

or cost. On the other hand, if actual input VAT attributable to sale to governmeni is less than seven percent (7%) of gross payment, the difference n'ust be closed to expense or cost. the net VA payable of theseller: The remaining seven percent (7%) instrument lities or agencies including GOCCs in lieu of the actual input VAT direct y uttributable or ratably apportioned to such sales. Should actual inpui VAT attributable to sale to government exceeds seven percent (7%) of gro's payments, the excess may form part of the sellers'expense effectively ccounts for the standard input VAT for sales of goods or services to government or any of itspolitical subdivisions "Th five percent (5%) final VATwithholding rate shall represent

and that, "the certifi al's of the 5% final withholding VAT have not been claimed and/or government clients jor ihe Sales. the VAT is paid by the Joiri Venture and not by APO". the costs of the Join Vnture. Again.as stated by the Chairr an and President of APO in his Affidavit dated 8 April 2022,while APO issued Value Added Tax VAT invoices to the applied byAPO. is the Joint Venture that incurs the costs and purchases raw materials for these sales. Inasmuch as the sales of APO to government clients of the Joint Venture are actually the sales of the Joint Ver ture. then. it follows that the costs incurred for such sales are likewise The input tax es corresponding fo these transactions are of no use to APO because it

are for the account of the Joint Venture. Therefore. and following the rationale in the Further, the (utp ut VAT for the sales and the input VAT for the costs of such sales

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aforementioned cas: .f Collector of Internal Revenue vs. Batangas Transportation Compan. this Offic : i> of the considered view that the Joint Venture may benefit from the deduction of the inr ait VAT expense or the charging against the cost of the input VAT in the input tax shall h - restricted to the total amount as duly supported by appropriate sales accordance with Se tioi 114 (C) of RR No. 16-2005. as amended, provided, however, that inv oices'official rec: ipts.

have been claime.t :ind/or applied by APO against its income tax and VAT liabilities/payables. Finaily, it is un lerstood that the certificates of CWT and the input VAT must not

ruling shall be consi ler 'd null and void. However. if upon ir vestigation. it will be disclosed that the facts are different. then this This ruling s heing issued on the basis of the foregoing facts as represented.

Very truly yours.

aiAaALy

CAESAR R. DULAY Commissiofer of Internal Revenue B B 051719

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