BIR Ruling No. 340-2016

REPURLICOF THE PHILIPPINES

BUREAUOFINTFRNAL REVENUF DEPARTMENT OF FINANCE

Quezon City

Scc.22(B)114 NIRC:RR

14-02:RR 10-12

BIR Ruling No.475-14 BIR Ruling No.176-14

340-2016 6-29-2016

CHINA GEO-ENGINEERING CORPORATION/

6-11 Compound,MIA Road,Pasay City PHILWORKS CONSTRUCTION& SUPPLY(JV)

Attention:Ms.Grace B.De Leon JV Partner

Gentlemen:

This refers to your letter dated March 31.2015 requesting for a ruling that the joint venture betwcen China Geo-Engineering Phil. Corporation China Geoand

Phiiworks Construction & Supply Philworks for the exclusive purpose of pre qualifying, participating and actually undertaking the construction of/CA Assisted Roud Upgrading and Preservation Project. Asset Preservation Contract-Preventive MaintenanceAPC-PMComponent.HybridLongTermPerformanceBased Maintenance LTPBMContract PBM-3 Maharlika HighwaySipocot-Buao Roa

SectionKO370+700to KO480+146.Province of Camarines SurRegion VJV Project is exempt from income tax and consequently.not subject to the two 2% percent creditable withholding tax pursuant to Revenue Regulations (RR) Nos.014-02

and 10-12.

DocumentssubmitteddisclosedthatChinaGeo-Engineering (Phil.) Corporation/Philworks Construction &Supply Joint VentureJVwith TIN

is an incorporated joint venture with SECRegistration No. formed to undertake the pre-qualification and construction of the JV Project that the JV is also registered with the Philippine Contractors Accreditation Board (PCAB with Special Contractor's License No. first issued on November 28.2014 that on the other hand.China Geo is registered with the BIR with TIN and is engaged in the business of building of constructions or parts and civil engineering. constructions or parts and civil engineering that it is also registered with the PCAB with that it is also registered with the PCAB with Special Contractor's License No. BIR with TIN first issued on November 28.2014: that Philworks is likewise registered with the and is engaged in the business of building of

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340-2016 Section22BRR10-12 6-2-2016

Chna Geo-Philworks Joint Venture Agreement

C

F2er5n

Contractor's License No.15-02434 first issued on November 25.2005that the JV the implementation and construction of the afore-mentioned JV Project; and that the entered into a contract with the Department of Public Works and Highways (DPWH for

herein co-venturers have mutually bind each other to contribute to the joint venture.on a China Geo (75% and Philworks (25% percentage of participation, all the necessary

capital,equipment. technical personnel.management.supervision,and other efforts and resourees for the proper prosecution or implementation of the project and to extend to

each other their respective fullest cooperation and best cfforts toward profitable construction of the project in accordance with approved plans and specifications to complete the same with approved work schedule.

created or organized, joint stock companies. joint accounts (cuentas en participacion. 1997. as amended. the term corporation shall include partnerships,no matter how In replyplease be informed that pursuant to Section 22 (B of the Tax Code of

association or insurance companies. but does not include general professional partnerships and 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.

Likewise,Section 4B5 of Revenue Regulations (RR No.14-2002 dated September 9.2002 provides that the withholding of creditable withholding tax CWT shall not apply to income payments made to joint ventures or construction formed for the purpose of undertaking construction projects or engaging in petroleum.coal,geothermal

& other energy operations pursuant to an operating or consortium agreement under a Service contract with the government.

Furthermore.Section 3 of RR No.10-2012 dated June 1.2012 provides.to wit

SFCTION 3.Joint Ventures Not Taxable as Corporations.A joint venture or consortium formed for the purpose of undertaking

construction projects which is not considered as corporation under Section 22 of the NIRC of 1997 as amended,should be

for the undertaking of a construction project; and (2 localcontractors;that is, licensed as general contractor by should involve joining or pooling of resources by licensed the Philippine Contractors Accreditation Board (PCAB of

(3 the local contractors are engaged in construction business the Department of Trade and Industry (DTD

and

4 the Joint Venture itself must likewise be duly licensed as

such by the Philippine Contractors Accreditation Board PCABof the Department of Trade and Industry(DTI

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Section 22(B): RR 10-12 #340-2016 6m29-206

Joint Venture Agreement China Geo-Philworks 3

SE

Joint ventures involving foreign contractors may also be treated as a non-taxable corporation only if the member foreign contractor is covered by a spccial license as contractor by the Philippine ContractorsAccreditation Board (PCABof the Department of Trade and Industry DTI and the construction project is certified by the appropriate Tendering Agency governmentofficethattheprojectisaforeign

financed/internationally-funded projectandthatinternational bidding is allowed under the Bilateral Agreement entered into by andbetweenthePhilippineGovernmentandthe

implementing rules and regulations of Republic Act No.4566 foreign/internationalfinancinginstitutionpursuanttothc

otherwise known as Contractor's License Law.

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 as herein defined shall not include those who are mere suppliers of goods. services or capital to a construction project.

shall each be responsible in reporting and paying appropriate The members to a Joint Venture not taxable as corporation

income taxes on their respective share to the joint ventures profit."

Such being the case. China Geo-Engineering Phil Corporation/Philworks Construction & Supply Joint Venture formed for the purpose of construction of the JICA Assisted Road Upgrading and Preservation Project. Asset Preservation

Performance Based Maintenance (LTPBM Contract PBM-3 Maharlika Highway Contract-PreventiveMaintenanceAPC-PMComponent,HybridLongTerm Sipocot-Baao Road Section.KO370+700 to KO480+146.Province of Camarines Sur

Region V.with the DPWH is considered as a joint venture not taxable as a corporation for complying with the conditions provided in RR 10-2012,i.e.. the V is for the undertaking of a construction project; (2 the JV should involve joining or pooling of resources by licensed local contractors(licensed as general contractor hy the(PCAB) or in case of foreign contractor(covered by a special license as contractor by the(PCAB)

amended by RR No.14-2002.(Section 4(B5 of RR No.14-2002 dated September 9. (3)the local contractors are engaged in construction business; and(4)the JV itself must likewise be duly licensed by PCAB: and therefore not subject to the corporate income tax under Section 27Aof the Tax Code of 1997,as amended,and consequently.to the 2% CWT prescribcd under Section 57(B) of the same Code,as implemented by RR 2-98.as 2002)

the joint venture pursuant to Section 114(C of the Tax Code of 1997.as amended. withhold a final value-added tax at the rate of five percent (5% of its gross payment to However, the DPWH. as a government withholding agent, should deduct and

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Joint Venture Agreement Section 22(B)RR 10-12 ChinaGeo-Philworks 6-29-16 3402036

A

to file quarterly and final adjustment returns. The herein joint venture being exempt from corporate income tax is not required

income during each taxable year respectively derived by them from the aforesaid construction project (BIR Ruling No.475-14 dated November 26.2014. tax imposed under Section 27A) of the Tax Code of 1997,as amended,on their taxable However.the co-venturers are separately subject to the regular corporate income

Section 57 of the Tax Code of 1997,as amended, and implemented by RR 2-98.as from the joint venture project is subject to the creditable withholding tax imposed under amended.Thus,beforeChinaGeo-Engineering(Phil.Corporation/Philworks Construction & Supply Joint Venture distributes the net income of the co-venturers. pursuant to their agreed profits/income sharing, it shall withhold the tax based on the net income of its co-venturers. It should be emphasized that the respective net income of the co-venturers derived

Internal Revenue's Electronic Filing and Payment System (EFPS).The enrollment should be done at the Revenue District Office (RDO where they are registered as taxpayers. (Section 4 of RR No. 10-2012) Finally, the co-venturers are required to enroll themselves to the Bureau of

However. if upon investigation,it will be disclosed that the facts are different, then this ruling shall be considered null and void. This ruling is being issued on the basis of the foregoing facts as represented.

Very truly yours.

Commissioner of Internal Revenue KIM S. JACINTO-HENARES

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JUN 2 0 2016

K-1 gps(china geo-philworks jv