October 12, 2018

BIR RULING NO. 1243-18

Sec. 22 (B) of the NIRC; RR 14-02; RR 10-12;
BIR Ruling No. 475-14
Advanced Foundation Construction Systems Corp./
Allencon Development Corporation (Joint Venture)
#58 Avancena Street, North Fundidor, Molo,
Iloilo City 5000

Attention: Mr. James A. Ang

Authorized Managing Officer

Gentlemen :
This refers to your letter dated February 15, 2017, requesting for a ruling that the
joint venture between Advanced Foundation Construction Systems Corporation and
Allencon Development Corporation for the purpose of undertaking the construction and
Replacement of Permanent Weak Bridges Tumagbok Bridge (B00131PN) Along Iloilo
— Antique Road, ("JV Project") is exempt from the two (2%) percent creditable
withholding tax pursuant to Revenue Regulations (RR) No. 014-02. TIADCc

Documents submitted disclosed that Advanced Foundation Construction

Systems Corporation/Allencon Development Corporation Joint Venture ("JV"), with Tax
Identi cation Number (TIN) 488-130-158-000 is an unincorporated joint venture
formed to undertake the construction of the JV Project; that the JV is also registered
with the Philippine Contractors Accreditation Board (PCAB) with Special Contractor's
License No. JV-16-011 rst issued on July 1, 2016; that on the other hand, Advanced
Foundation Construction Systems Corporation is registered with the BIR with TIN 000-
050-211-000 and is engaged in the business of construction of foundations, deep
excavations, ground improvement, ground water control and the manufacture of
equipment related thereto; that it is also registered with the PCAB with Contractor's
License No. 15449 rst issued on October 2, 1992; that Allencon Development
Corporation is likewise registered with the BIR with TIN No. 000-251-390-000 and is
engaged in general construction; that it is also registered with the PCAB with
Contractor's License No. 12302 rst issued on August 29, 1989; that the JV entered
into a contract with the Department of Public Works and Highways for the construction
and completion of the afore-mentioned JV Project; and that the herein co-venturers
have mutually agreed to contribute to the joint venture, all the necessary capital
equipment's technical personnel, management supervision, and other efforts and
resources for the proper prosecution or implementation of the project and to extend to
each other their respective fullest cooperation and best efforts towards pro table
execution and success of the project in accordance with approved plans and
speci cations to complete the same based on the approved work schedule; and that
the co-venturers agreed that their respective proportionate share in the pro ts and
losses of the Joint Venture shall be 51% for Advanced Foundation Construction
Systems Corporation and 49% for Allencon Development Corporation.
In reply, please be informed that pursuant to Section 22 (B) of the Tax Code of
1997, as amended, the term "corporation" shall include partnerships, no matter how
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 created or organized, joint stock companies, joint accounts (cuentas en participacion),
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. cSEDTC

Likewise, Section 2.57.5 of RR No. 2-98, as amended by RR 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:
"SEC. 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:
(1) for the undertaking of a construction project; and
(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).
xxx xxx xxx
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. AIDSTE

In addition, the tax-exempt joint venture or consortium as herein de ned

shall not include those who are mere suppliers of goods, services or capital to a
construction project.
The members to a Joint Venture not taxable as corporation shall each be
responsible in reporting and paying appropriate income taxes on their respective
share to the joint ventures profit."
Such being the case, Advanced Foundation Construction Systems
Corporation/Allencon Development Corporation Joint Venture formed for the purpose
of undertaking the construction and Replacement of Permanent Weak Bridges
Tumagbok Bridge (B00131PN) Along Iloilo — Antique Road , with the Department of
Public Works and Highways is considered as a joint venture not taxable as a
corporation for complying with the conditions provided in RR 10-2012, i.e., (1) the JV is
for the undertaking of construction project; (2) the JV involves joining or pooling of
resources by licensed local contractors (licensed as general contractor by the PCAB);
(3) the local contractors are engaged in construction business; and (4) the JV itself is
duly licensed by PCAB; and therefore not subject to the corporate income tax under
Section 27 (A) of the Tax Code of 1997, as amended.
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 Furthermore, the gross payments to the joint venture on the JV Project are
likewise, not subject to the 2% creditable withholding tax prescribed under Section 57
(B) of the same Code, as implemented by RR 2-98, as amended by RR No. 14-2002.
(Section 4 of RR No. 14-2002 dated September 9, 2002)
The herein joint venture, being exempt from corporate income tax, is not required
to le quarterly and nal adjustment returns but the co-venturers are separately subject
to the regular corporate income tax imposed under Section 27 (A) of the Tax Code of
1997, as amended, on their taxable income during each taxable year respectively
derived by them from the aforesaid construction project (BIR Ruling No. 475-14 dated
November 26, 2014).
It should be emphasized that the respective net income of the co-venturers
derived from the joint venture project is subject to the creditable withholding tax
imposed under Section 57 of the Tax Code of 1997, as amended, and implemented by
RR 2-98, as amended. Thus, before Advanced Foundation Construction Systems
Corporation/Allencon Development Corporation Joint Venture distributes the net
income of the co-venturers, pursuant to their agreed pro ts/income sharing, it shall
withhold the tax based on the net income of its co-venturers (BIR Ruling No. 475-14
dated November 26, 2014).
Finally, the co-venturers are required to enroll themselves to the Bureau of
Internal Revenue's Electronic Filing and Payment System (EFPS). The enrollment should
be done at the Revenue District O ce (RDO) where they are registered as taxpayers.
(Section 4 of RR No. 10-2012)
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 are different, then this
ruling shall be considered null and [Link]

Very truly yours,

(SGD.) CAESAR R. DULAY

Commissioner of Internal Revenue

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