According to the above definition, a joint venture or consortium formed for the purpose of carrying out construction projects is not treated as a corporation and, as such, is NOT subject to income tax. It was Presidential Decree No. 929 of 4 May 1976 that introduced such an exception to help local entrepreneurs achieve competitiveness with foreign entrepreneurs by pooling their resources in the implementation of major construction projects. Joint ventures involving foreign entrepreneurs should be: Without one (1) of the requirements, the tax exemption would be disqualified. The joint venture or consortium does not include mere suppliers of goods or services or the capital of construction projects. Tax-exempt members of joint ventures are responsible for reporting and paying reasonable taxes on their respective share of the joint venture`s profits. «The Company includes partnerships, regardless of how they are formed or organized, joint-stock companies, joint accounts (cuentas en participation), associations or insurance companies, but not general professional partnerships and a joint venture or consortium formed for the purpose of carrying out construction projects or participating in oil operations, Coal, geothermal and other energy operations under a company consortium agreement in the was established under a service contract with the government. According to the BIR, a joint venture (JV) created to carry out construction projects is not taxable as a company if it meets the conditions set out in RR No. 10-2012. Joint venture partners must be licensed local contractors and/or foreign contractors with a special license as a contractor through PCAB, with the construction project being certified by the relevant government agency as a foreign-funded/internationally funded project. In addition, the joint venture itself must be duly authorized by PCAB. Such a qualified joint venture is not subject to corporate tax and 2% CWT and is not required to file quarterly and final adjustment returns. For individual taxpayers, subjecting shares to the net income of ordinary partnerships is quite straightforward, since the Tax Code, as amended, imposes an FWT pursuant to section 24(B)(2) or section 25(A)(2), whichever is applicable.
The wisdom of the above provisions should be examined, as they place the shares of the net income of the ordinary company in virtually the same place and in the same tax liability as dividends received by individual taxpayers of domestic corporations. With this in mind, it may be logical to argue that the source of income at all levels should be grouped in the same way and, therefore, exempt from tax when obtained from COUNTRIES and RFCs. The flaw in this logic, however, lies in the fact that tax exemptions strictissimi juris (Latin for «the strictest letter of the law») are interpreted against the taxpayer and generously in favor of the government. In simpler terms, a taxpayer cannot successfully rely on a tax exemption unless the law expressly provides for it. However, the levying of a tax on it may be interpreted as double taxation, since the same income is effectively taxed in two places: on the one hand, at the instigation of the partnership and, on the other hand, at the instigation of the recipient company. A de facto merger is the acquisition of all or substantially all or substantially all of another company`s real estate by a company exclusively for shares, which are usually carried out for good faith commercial purposes and not just to avoid taxes. For the acquisition to be considered significant, at least 80% of the assets acquired must have an element of sustainability, i.e. not be acquired for immediate sale.
Unlike a legal merger, in which the acquired company is automatically dissolved as a result of the merger, in a de facto merger, the company whose assets were acquired survives after the transfer until it is subsequently dissolved by another act. Instead, venturers are those who are subject to tax separately and must register under eFPS. The joint venture shall withhold tax on the basis of the net income of its joint venturers. RR 10-12 sets out the requirements for the implementation of tax exemptions for joint ventures carrying out construction projects as follows: One of the most interesting changes is the newly delegated explicit authority of companies to enter into partnerships and joint ventures with natural and legal persons under Article 35(h) of the CCR. Previously, it was considered to be outside the ultra vires powers of a corporation to enter into a partnership or joint venture with natural or legal persons, adopting the rule contained in U.S. jurisprudence that a corporation should regulate its own affairs separately and exclusively. However, there has also long been debate about whether a corporation is really not allowed to enter into a partnership or joint venture: in Tuason v. Bolanos (G.R. No. L-4935), the Supreme Court («SC») held that «although a corporation does not have the power to enter into a partnership, it may still enter into a joint venture with another if the nature of that corporation is consistent with the activity authorized by its charter.» Read this in conjunction with Aurbach and. al., v.
Sanitary Wares Manufacturing Corporation (G.R. Nr. 75875), where the Supreme Court provided that «a joint venture is a form of partnership and should therefore be governed by partnership law», it can be found that, although companies are not allowed to become partners under the old code, in some cases they were indeed allowed to become partners. Meanwhile, the Securities and Exchange Commission («SEC») has also long believed that companies may enter into joint venture agreements if the nature of the joint venture is consistent with the transaction authorized in their articles of incorporation (sec-OGC Notice No. 22-16, citing SEC notices dated January 26, 1961; February 29, 1980; November 11, 1981; and April 29, 1985). In accordance with the firm rule that enterprises, as natural persons, cannot acquire personal qualifications such as education and skills necessary for the exercise of a profession, it has been argued that persons, partnerships and associations authorized to engage in professions are prevented from incorporating a company for such conduct. Implicitly, corporations are still not allowed to become partners in partnerships («PPGs») – that is, a partnership that practices a profession. In the context of this new development, the question of the liability to profits of shares received by a national company («DC») or a resident foreign company («RFC») as a partner or joint venture arises: what tax is levied on them? One of the arguments is that these income shares are representative of the flow of wealth, which is not a mere return of capital, and like any other increase in net worth, they should be taxed at the ordinary corporate income tax of 30% (RCIT) under Articles 27 (A) or 28 (A) of the Tax Code.
However, it should be recalled that, since commercial partnerships and joint ventures, with the exception of those established for the purpose of carrying out construction projects or participating in oil, coal, geothermal and other energy transactions, are already taxed in the same way as domestic companies, the subsequent taxation of RCIT on the respective source of income can be interpreted as a case of double taxation. which can be avoided if they are to be combined with intercorporative dividends that are exempt under Article 27(D)(4) or Article 28(A)(7)(d) of the Tax Code. However, the second argument may be refuted by the fact that the share of partnerships` profits does not fall within the definition of `dividends` in Article 73(A) of the Tax Code, which refers to partnerships exclusively as distributions of income to shareholders. In addition, Section 28(B)(5)(b) of the Tax Code generally imposes a withholding tax («FWT») on intercorporative dividends or a lower rate of 15% in respect of non-resident foreign corporations («NRFC»), provided that the country in which the NRFC resides allows a credit on tax due from NRFC taxes deemed to have been paid in the Philippines. .