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Free agency

If there’s anything the current offseason in the National Basketball Association has shown, it’s that players want to control their destiny. They’re making plans based on developing realities and seeing how they can conceivably come closer to meeting their ultimate objective. Given the surfeit of talent, they understand that getting ahead means getting support. Which is why marquee names are constantly engaging with each other and cooking up scenarios where individual goals dovetail with collective pursuits.

No doubt, the speed with which information flows and is imparted in this day and age of social media makes appreciating the big picture more difficult. In the face of constantly moving targets, those from the outside looking in are compelled to engage in no small measure of speculation. There is, to be sure, the option of simply waiting for things to happen with finality and then assess the 2019-20 campaign from there, but half the fun is in going along for the thrills the free agency ride provides. What is true — or passes off for truth — constantly evolves in the face of the sheer number of options available to protagonists.

It isn’t just increased mobility that makes proceedings hazy and outcomes difficult to predict. It’s also the volume of warm bodies looking for the best possible landing spots. All eyes may be on the likes of Kawhi Leonard, Kevin Durant, Kyrie Irving, Jimmy Butler, and Kemba Walker, but there can be no glossing over the fact that a full four-tenths of the league can be changing addresses of their own volition. The nomadic situation amps up volatility and provides cause for percolating her possibilities. Will Leonard and Durant team up as Knicks or Clippers? Will this force Irving to abandon plans to ink with the Nets and instead join the Lakers? And so on and so forth.

Under the circumstances, the difficulty of parsing truth from modicums of truth becomes more pronounced, but likewise engenders further discussion. It’s all well and good for the commissioner’s office, which most decidedly welcomes the headlines scenario-building makes. The constant jockeying for position all but creates another season — and certainly another source of entertainment — in and of itself. And the fun doesn’t end there. When the dust settles, up next is walking the talk; all the moves off the court will have to be validated (or not) on it.

Indeed, chemistry and a host of other factors remain up in the air. Still, players will have followed their heart and put themselves in prime position to succeed. And that, in the final analysis, is what matters. Until the next round of movements, of course.

 

Anthony L. Cuaycong has been writing the Courtside since BusinessWorld introduced a Sports section in 1994. He is a consultant on strategic planning, operations and Human Resources management, corporate communications, and business development.

Ban on new NCR eco-zones puts P34B in BPO investment at risk

SOME P34.238 billion worth of business process outsourcing (BPO) projects are at risk due to President Rodrigo R. Duterte’s recent order to halt the processing of economic zone applications in the National Capital Region.

In a mobile message last week, Deputy Director-General of the (Philippine Economic Zone Authority)PEZA’s Policy and Planning Tereso O. Panga said this was the total worth of 22 projects — 21 information technology (IT) centers and one IT park — pending at the Office of the President (OP).

Some 131 more projects, which have not been turned over to the OP, are also at risk.

Meanwhile, the Department of Trade and Industry said it will seek a longer period for the business process outsourcing industry to fulfill the OP’s documentary requirements in order to obtain an official proclamation for their economic zones.

Asked to comment on Administrative Order (AO) 18, Trade Secretary Ramon M. Lopez said the DTI will request from Mr. Duterte a longer transition period.

“I will just review (whether we will seek) three months or how many months. Offhand, three months is good enough,” Mr. Lopez told reporters Friday night in Makati City.

“We will discuss internally. Kung pumayag si Presidente, amend (If the President agrees, we will amend). I don’t know. The best case is an amendment). Kung hindi, the boss, sinabi na niya yan, yan na ang policy (If not, that’s the policy, because that’s what the boss says),” Mr. Lopez added.

The DTI’s three-month request is shorter than the six-month minimum transition period to be sought by PEZA as the agency considers the time needed to make many locations ready, in terms of infrastructure and technological capacity, to host BPOs.

The six months would also allow the applicants more time to meet the documentary requirements, some of which Mr. Panga has said are difficult to obtain and are unnecessary.

However, Mr. Lopez defended the need for the requirements as part of a thorough due diligence.

In all, Mr. Lopez said the policy is necessary to bring jobs to those in the rural areas who are compelled to move to Metro Manila to find work.

AO 18 took effect on June 22. The moratorium covers applications submitted to the OP and puts under pressure those that are lacking in their documentary requirements. It gives PEZA until July 22 to address those deficiencies.

PEZA will be given 30 days to act on an incomplete application upon receipt of notice from the OP.

Mr. Panga has yet to draft a letter of request to the president as PEZA awaits input from the Information Technology and Business Process Association of the Philippines (IBPAP) and Union of Local Authorities of the Philippines.

IBPAP President and CEO Rey C. Untal had said the industry projects most of the growth to be generated by Metro Manila, noting the group forecasts the take-up of office space in Metro Manila to hit 400,000 to 450,000 square meters this year.

The BPO industry accounts for 30% to 35% of the total office space take-up in the metropolis.

About 56.17% of the 381 PEZA-registered IT economic zones nationwide are in Metro Manila.

In the four months to April, IT-related investment pledges at PEZA fell 7.08% year on year to P4.632 billion.

In the first quarter, exports from the sector rose 6.75% to $3.071 billion while employment rose 10.68% to 741,905 persons. — Janina C. Lim

ANZ expects spending recovery only in 3rd quarter

ANZ Banking Group said it maintained its estimate for Philippine gross domestic product (GDP) growth in 2019 to 6%, the lower range of the government’s target range of 6-7%, with public investment and spending unlikely to recover until the third quarter of 2019.

“We continue to expect GDP growth at 6% in 2019. Although private consumption is likely to remain firm, public expenditure and investment are not likely to recover until Q3,” ANZ said in its Asia Economic Outlook report.

“The impact of the delayed 2019 budget was apparent from a contraction in public spending as well as its attendant impact on private investment. The latter was also likely affected by rate hikes made last year. Indeed, we expect the impact from the delayed budget along with the election-related public construction ban to have extended into Q2.”

“Capital imports and government disbursements in April remained disappointing, suggest sustained weakness in public spending and investment,” ANZ said.

ANZ noted that only private consumption accelerated in the first quarter, with GDP growth only at 5.6%, due largely to the delayed passage of the 2019 General Appropriations Act (GAA).

ANZ’s forecast is below the 6.2% GDP growth posted in 2018.

However, ANZ said that a slowdown in growth could “help arrest some of the underlying imbalances in the Philippine economy” in the area of imports, credit and inflation.

ANZ said merchandise imports grew at a slower pace of 2.8% in April from 10.3% in December, based on a three-month average basis, resulting in a lower trade deficit of $3.1 billion in the first quarter compared with $4.2 billion in the last quarter of 2018.

ANZ also said the contraction in exports slowed to 0.5% in April from 1.5% in December.

“If these trends continue, the current account balance as (a share of) GDP will improve in 2019,” ANZ said.

ANZ sees economic growth of 6.2% next year.

Last week, Socioeconomic Planning Secretary Ernesto M. Pernia said that it is still possible to achieve a 6.5% GDP expansion this year due to election spending, consumption, and lower inflation.

“I would say 6.5% is attainable,” Mr. Pernia said, noting however, that growth in the second quarter is “not as strong as the third quarter would be.”

The Bangko Sentral ng Pilipinas (BSP) has revised its inflation forecast for this year to 2.7% from the earlier 2.9%. — Reicelene Joy N. Ignacio

DoST tells Western Visayas schools to explore AI

By Emme Rose S. Santiagudo
Correspondent

THE WESTERN Visayas Region has the potential to become a hub for the science and technology sector due to the strong research and development performance of its state universities and colleges (SUCs), according to Department of Science and Technology (DoST) Secretary Fortunato T. dela Peña.

“If you talk of about Western Visayas, it’s more agriculture, fisheries, and marine science that is being done here,” Mr. Dela Peña said in a news conference last week during the ViScience 2019: Visayas Science Festival at the Iloilo Convention Center.

Among the SUCs in the region are the University of the Philippines Visayas, Iloilo Science and Technology University (ISAT-U), and the West Visayas State University, which recently had 12 of its graduates as topnotchers in the Nursing Licensure exam.

Mr. Dela Peña said while agriculture and marine science research should remain a priority, he called on the academe and researchers in the region to explore artificial intelligence (AI) and other Fourth Industrial Revolution sectors such as space technology, autonomous vehicles, and digital health care sensors.

“In ISAT-U for example, they are into engineering and metal working and in Negros, they are also strong in engineering. University of San Agustin has also started research on pharmaceuticals that are derived from the sea,” he said, speaking in mixed English and Filipino.

He also cited a recent private sector development in Capiz where a center has been set up for artificial intelligence development.

“In Capiz… they have… a private-sector development, where they allocated a certain area which they call Spring Valley. There is already one building there where they operate a center that is devoted to artificial intelligence. If you go there, you can find 10-15 young people employed doing software development and I think they are already conducting training in artificial intelligence.”

Department of Trade and Industry (DTI) Iloilo Provincial Director Ermelinda P. Pollentes said the department is trying to collaborate with the Capiz Innovation Center in Pueblo de Panay.

“We are also trying to see how we can link up with the Capiz Innovation Center of Pueblo de Panay. They have already some advanced developments, in the IT (information technology) sector. We would like to link up with them (to help) start-ups,” she said.

She said the DTI wants to position Iloilo as the country’s sixth Regional Inclusive Innovation Center.

“This is in preparation for the digital transformation age. I believe Iloilo is ready for this. We have been supporting the province through our shared service facilities (SSF) and other high-level equipment that will help small and medium-sized entrepreneurs (SMEs) to level up their operations,” she said.

Western Visayas, the fifth-largest economy outside of the capital, had a gross regional domestic product (GRDP) amounting to P372.87 billion in 2018. Of the total, 58.1% came from the services sector, 24.7% from industries, and 17.2% from agriculture and fisheries.

The ViScience 2019 festival showcased knowledge and technology products generated by various universities from the three Visayas regions with support from the DoST, and served as a venue for more collaboration between the various institutions.

Among the technology products that were presented were the Flood Hazard Mapping in Western Visayas initiative by UP Cebu, a Botanical Dewormer from Capiz State University, and several products from UPV: algal paste, a remotely operated automatic bottom feeder, and mussel sauce.

CTA amends 3M ruling, orders payment of P20.5 million

THE Court of Tax Appeals (CTA) said it ordered 3M Philippines, Inc. to pay P20.5 million in tax deficiency for 2011.

In an amended decision dated June 19, the CTA second division partially granted the motion for reconsideration of 3M Philippines, Inc., finding it entitled to a refund of P1.6 million representing its erroneous payment of deficiency income tax.

However, it upheld a finding that 3M was liable for an assessed deficiency of P20.5 million representing value-added tax (VAT), expanded withholding tax (EWT), and withholding tax on compensation (WTC) inclusive of interests, saying it was not able to provide supporting documents that proved its refund claim.

The company said that court was wrong to rule that it was liable for VAT deficiency on additional taxable income per amended income tax return (ITR) of P3.1 million, but the CTA said it “did not provide supporting documents on the item of additional taxable income per amended ITR.”

It also claimed that the CTA incorrectly disallowed input tax due to improper invoicing worth P4.47 million.

“Petitioner’s arguments are a mere rehash of the same facts and issues which have already been discussed upon extensively in the assailed Decision,” the CTA ruled.

As to the EWT and WTC, the court upheld its previous decision that 3M is liable for EWT of P1.5 million and deficiency WTC of P2.1 million.

“A careful evaluation of petitioner’s arguments with respect to the deficiency EWT and WTC reveals that these are essentially mere rehashes of the same facts and issues which have already been evaluated thoroughly in the assailed Decision,” the court said.

3M claimed that the court mistakenly ruled that it did not provide sufficient documentary evidence to refute the deficiency EWT assessment and it disagreed with the charges to the salaries and allowances account in the 2011 Audited Financial Statement figures, representing SSS employer contributions, and other expenses among others.

The court said that the income tax of 3M “is effectively extinguished” due to its overpayment of P6.55 million income tax, enough to cover its deficiency income tax of P684,788.25 and interest of P423,326.96.

3M was also ordered to pay the Bureau of Internal Revenue (BIR) delinquency interest rate of 12% on the unpaid basic deficiency taxes of P12.8 million plus corresponding 25% surcharge and deficiency interest as of Nov. 5, 2015.

The court also denied for lack of merit the motion for partial reconsideration of the BIR.

The CTA on Jan. 30 canceled the final withholding tax of 3M worth P620,167.17 and denied its refund claim worth P5.8 million. It was also ordered to pay deficiency taxes of P20.8 million and delinquency interest rate of 12% on total unpaid amount of P12.9 million on its basic tax deficiency.

The decision was written by Associate Justice Juanito C. Castañeda, Jr. and concurred in by Associate Justice Catherine T. Manahan. — Vann Marlo M. Villegas

French delegation asks for more sectors to be opened to foreign investment

A DELEGATION from France has urged the Philippines to ease investment rules in more sectors, particularly in public service and retail, the Department of Trade and Industry said following a bilateral economic meeting between Manila and Paris.

The main concerns of the French delegation center on the foreign investment negative list, Trade Secretary Ramon M. Lopez said.

“Gusto nila mas ma-open up pa (The French want further opening),” Mr. Lopez told reporters after the 8th Joint Economic Committee meeting between the Philippines and France on Friday in Makati City.

“I think they’re looking into public service and retail. They view it as a good move for us to fast-track reform of the foreign investment regime,” he added.

The Public Service Act of 1936 lists several sectors as “public utilities” from which foreigners are barred from owning more than 40%.

Two measures, House Bill 5828 and Senate Bill 1754, aim to limit the definition of public utilities to the distribution and transmission of electricity; and water pipeline distribution systems or sewerage pipeline systems.

The two bills did not pass under the 17th Congress, and neither did measures aimed at liberalizing retail trade.

House Bill No. 9057 and Senate Bill 1639 sought to amend Republic Act No. 8762, or the Retail Trade Liberalization Act of 2000, which requires foreigners seeking to fully own a retail business to have $2.5 million minimum paid-up capital.

Mr. Lopez said other areas of interest to the French business delegation are aerospace, automotive, cable cars, electronics and the creative industries.

However, specific commitments have yet to be laid down.

Jean-Baptiste Lemoyne, Minister of State with the French Ministry for Europe and Foreign Affairs, said he hopes the next Joint Economic Committee (JEC) to take place in “one to three years maximum.”

“The French companies that were here had the opportunity to expose their expertise, their know-how, and the fact is that we French, we are not just here to help, to design, or to build, but also to operate, to stay, because we do not want just a one-shot cooperation, but a strategic relation between our companies and our countries,” Mr. Lemoyne said in his speech at the signing of the summary of discussions of the JEC. — Janina C. Lim

GOCC dividends top P44.69B in mid-June

GOVERNMENT-OWNED and controlled corporations (GOCCs) remitted dividends amounting to P44.69 billion as of mid-June, up 57% from a year earlier, according to the Department of Finance (DoF).

In a statement Sunday, DoF Assistant Secretary Soledad Emilia J. Cruz said, “Cash dividend collection from GOCCs reached P44.69 billion as of June 14, 2019. We expect this to breach the P50 billion mark by the end of the year.”

According to the DoF, the Philippine Amusement and Gaming Corp. (PAGCOR) remitted P16.17 billion, leading the top 10 in terms of dividends generated.

The Philippine Deposit Insurance Corp. (PDIC) remitted P4.58 billion, while the Bangko Sentral ng Pilipinas remitted P4 billion.

The Philippine Ports Authority supplied P3.52 billion, followed by the Civil Aviation Authority of the Philippines (CAAP) with P3.51 billion.

The Manila International Airport Authority remitted P3.42 billion; Land Bank of the Philippines, P1.96 billion; National Power Corp., P842.38 million; Clark Development Corp., P815.77 million; and the Philippine Charity Sweepstakes Office P744.23 million.

Under Republic Act No. 7656, GOCCs should declare and remit at least half of their earnings as dividends to the national government.

The DoF noted that total cash dividends collected under the Duterte administration from July 2016 until mid-June 2019 amounted to P115.61 billion. — Reicelene Joy N. Ignacio

Labor turnover peaks in 2018 second quarter

EVERY quarter of 2018 posted net employment gains, with the labor turnover rate peaking in the second quarter, the Philippine Statistics Authority (PSA) said Friday.

According to the PSA’s Labor Turnover Survey, the labor turnover rate, or the difference between the rates of accession and separation, was highest at 1.7% in the second quarter, followed by 1.6% in the first quarter, and 0.8% in both the third and fourth quarters.

The second-quarter result indicates that for every 1,000 workers, 17 people were added to the work force on a net basis.

“Positive labor turnover rates in the country were at the highest levels in 1Q 2018 and in 2Q 2018 when both inflation and local interest rates were still much lower and before both inflation and interest rates sharply increased in the latter part of 2018 that resulted in lower positive labor turnover rate of 0.8 for both 3Q 2018 and 4Q 2018,” said Michael L. Ricafort, economist at Rizal Commercial Banking Corp. (RCBC), in an e-mail yesterday.

He noted that lower inflation and key policy rates had attracted more investment that led to job creation.

“When both inflation and interest rates were on a riding trend some businesses frontloaded investment and production in the earlier part of 2018 (and) able to save on costs before prices and interest rate/borrowing costs go up further, leading the creation of more jobs/employment earlier in 2018,” Mr. Ricafort said.

Inflation had been mostly kept below 5% in the first half of 2018 before peaking at 6.7% in September and October. The rate of increase in the prices of widely used goods slowed to 6.0% in November and had continued to ease until May’s 3.2%.

To quell beyond-target inflation rates, the Bangko Sentral ng Pilipinas (BSP) resorted to a cumulative 175-basis-point (bps)hike in 2018. In its May meeting, the BSP’s Monetary Board slashed benchmark interest rates by 25 bps to a range of 4-5% amid easing inflation.

The accession rate — which represents hiring by employers to either replace former employees or expand the work force — was 9.5% in the third quarter and 8% in the fourth quarter. On the other hand, the separation rate — which includes terminations and resignations — was higher in the third quarter at 8.7% compared to 7.2% in the fourth quarter.

The accession rate during the year was highest in the second quarter at 11%. However, the quarter also saw the highest separation rate compared to other quarters at 9.3%.

For most of the quarter, more people were hired due to business expansion with the figure peaking in the second quarter at 5.5%. The sole exception was in the first quarter where hiring to replace separated workers was higher at 5.5% compared to the 3.8% hiring rate due to expansion.

On the other hand, the PSA noted that terminations initiated by employees, known in the report as “job quitters,” were the primary cause of employment loss last year.

For every 1,000 workers around 40 to 60 workers voluntary separated against the 13 to 38 workers that were laid off.

For services, the labor turnover rate ranged to as low as one percent in the first quarter to as high as 1.9% in the fourth quarter.

Labor turnover rates in the industry sector were 3.5% and 3.9% in the first and second quarter, respectively. However, net employment losses were observed in the third quarter (-0.1%) and the fourth quarter (-2.9%).

Meanwhile, agriculture’s labor turnover rate was highest at 2% in the first quarter but saw a decline of 1.3% and 1.5% in the next two quarters. It rebounded in the fourth quarter with a 1.3% turnover rate.

Looking forward, Mr. Ricafort still expects an improvement in job creation this year. He said that he has a “positive outlook for 2019 net jobs creation” from slowing inflation and lower local benchmark rates that could spur more investments and expansion projects.

“Increased infrastructure projects and catch up on some government spending (after the underspending in 1Q 2019 due to the delay in the 2019 national budget, which was already signed into law on April 15, 2019) especially on infrastructure will also lead to the creation of more job/employment opportunities in the local economy,” he added. — Marissa Mae M. Ramos

Businesses urged to improve quality of graduates via teacher training

EMPLOYERS said all industries need to get involved in improving teacher training to better prepare educators to turn out employable workers.

In an interview with BusinessWorld on Friday, Philippine Chamber of Commerce and Industry (PCCI) Chairman George T. Barcelon said, “I think the industry should get ourselves involved so the teachers will have a more rounded view of their role (in producing) what industry needs.”

“The private sector should raise this to a higher level,” Mr. Barcelon, who also sits as the Philippine Business for Education (PBEd) Board Member, added.

Mr. Barcelon said investing in teacher training will benefit companies if more graduates find a place in industry.

“They (Companies) invest in them to train but if they’re better-trained right out of school, the investment of the industry is less because they can be productive right away,” he said.

On Friday, PBEd wrapped up its five-year teacher scholarship campaign with the Australian government. PBEd’s “Scholarships for Teacher Education Programs to Update Teacher Quality in the Philippines” (STEP UP) provided opportunities to professionals regardless of background to become licensed professional teachers. The campaign began in 2015 and has funded over 900 scholars nationwide.

Executive Director Lovelaine B. Basillote said teacher quality is important in education since this will affect what students learn and the lessons they will apply in the real world.

“We need to make sure the best and brightest end up in teaching… by making sure they are highly qualified and classroom-ready,” she said during the closing event Friday.

PBEd Chairman Ramon R. Del Rosario, Jr. said the PBEd initiative hopes to achieve their organization’s goal of enhancing the education system. Producing quality teachers will result in competitive graduates entering in the labor force.

“Competitiveness is the key. We are not living in a vacuum. Our country lives in a world where one has to compete and one has to be up to a certain standard,” he said in the same event. — Gillian M. Cortez

PHL urged to review TRABAHO bill to ensure competitiveness — TMAP

THE government should ensure that the Tax Reform for Attracting Better and High-Quality Opportunities (TRABAHO) boosts Philippine competitiveness as an investment destination, the Tax Management Association of the Philippines, Inc (TMAP) said.

“Ang call namin is to further study it (our call is for further study), kasi the way the TRABAHO Bill is crafted, kumonti talaga ’yung incentives natin (the way the TRABAHO Bill is crafted, the incentives were reduced),” TMAP President Eleanor L. Roque told reporters Wednesday.

“Sobrang limited na siya to five years (It’s now limited to five years). Our call is to look at the incentive given (the offerings in) the region and see whether we can still be competitive, (because) we’re competing with the investments going to the region. In most cases, even globally,” Ms. Roque added.

Ms. Roque said that firms are looking for higher returns from their investment.

Under the TRABAHO Bill, incentives such as income tax holiday and exemption from Customs duties on importation of capital equipment and raw materials, and the 5% tax on gross income earned (GIE) shall not exceed a period of five years.

The Package 2 of the Comprehensive Tax Reform Program (CTRP) aims to reduce corporate income tax to 20% from the current 30% to attract more investments.

“Compare it with other countries especially ’yung mga kasabayan natin, Indonesia, Vietnam, Malaysia, Thailand. Some of them have the 10 to 15 years, some of them still have the indefinite depending where the investment is. Siguro dapat medyo luminya tayo roon (We should be at par with them) because those are our competitors,” Ms. Roque said.

The Department of Finance (DoF) has earlier said that it will file again the bills that form part of the CTRP in the 18th Congress.

“The business community is especially interested in the second package of the CTRP. For the 18th Congress, we are going to file again the bill to rationalize fiscal incentives and lower the corporate income tax,” DoF Undersecretary Gil S. Beltran said in a statement. — Reicelene Joy N. Ignacio

SEC finalizes rules on material RPT for listed firms

In line with efforts to better protect minority investors and improve corporate governance, the Securities and Exchange Commission (SEC) now requires Publicly-Listed Companies (PLCs) to disclose dealings with their related parties. SEC Memorandum Circular No. 10 provides the rules on reporting material related party transactions (RPT) and the minimum requirements in drafting the RPT policies of PLCs.

All PLCs are mandated to comply with the rules when they enter into material RPTs, which are transactions with related parties amounting to 10% or more of the company’s total assets based on its latest audited financial statements.

Related parties cover “the reporting PLC’s directors, officers, substantial shareholders and their spouses and relatives within the fourth civil degree of consanguinity or affinity, legitimate or common-law” having control and significant influence over the PLC. It also may pertain to “the reporting PLC’s parent, subsidiary, fellow subsidiary, associate, affiliate, joint venture or an entity that is controlled, jointly controlled or significantly influenced or managed by a person who is a related party.”

The Circular defines RPTs as “transfer of resources, services or obligations between a reporting PLC and a related party, regardless of whether a price is charged.” The term also includes outstanding transactions entered with an unrelated party that subsequently becomes a related party.

The SEC also requires PLCs to adopt and submit a group-wide Material RPT Policy within six months from the effectivity of the Circular (which was on April 27, 2019) for existing PLCs and within six months from listing date for those listed after the effectivity. The Material RPT Policy will, at a minimum, include guidelines on the identification of related parties, coverage of material RPT policy, materiality thresholds, identification and prevention or management of potential or actual conflicts of interest which may arise out of or in connection with material RPTs, ensuring arm’s length terms, approval of material RPTs, self-assessment and periodic review of policy, disclosure requirement of material RPTs, whistleblowing mechanisms, and remedies for abusive material RPTs.

Moving forward, PLCs must also file an Advisement Report on any material RPT within three calendar days after the transaction. At a minimum, such disclosures should include the complete name of the related party, relationship of the parties, execution date, the financial or non-financial interest of the related parties, type and nature of transaction as well as description of assets involved, total assets, amount or contract price, percentage of the contract price to the total assets of the reporting PLC, carrying amount of collateral (if any), terms and conditions, rationale for entering into the transaction, and the approval obtained.

Further, a summary of material RPTs entered into during the reporting year should be disclosed in the company’s Integrated Annual Corporate Governance Report (I-ACGR).

The board of directors is responsible for ensuring that transactions with related parties are handled in a sound and prudent manner, with integrity and in compliance with applicable laws and regulations to protect the interest of the company’s shareholders and other stakeholders. Hence, a director or officer of a corporation shall be disqualified from serving as such in another corporation if he or she is found to have facilitated abusive material RPTs based on a final judgment by a court.

To clarify, abusive material RPTs are those that are not entered at arm’s length and unduly favor a related party. To prevent this, the PLC’s Material RPT Policy shall have clear guidelines in ensuring the arm’s length nature of the transaction. The Board of Directors shall appoint an external independent party to evaluate the fairness of the terms of the material RPT before its execution. The policy shall also include guidance for an effective price discovery mechanism to ensure that transactions are engaged into at terms that promote the best interest of the company and its shareholders.

The Circular also provides penalties for other violations of these rules. Non/late filing of or incomplete/incorrect signatures in the Material RPT Policy will result in the imposition of a basic penalty amounting to P10,000 and a monthly penalty of P1,000 which will accrue until the policy is submitted to the SEC.

The SEC also imposes fines of up to P40,000, in addition to a daily penalty of up to P400, for non/late filing of Advisement Reports and a fine up to P20,000, in addition to a daily penalty of up to P400, for incomplete/incorrect Report. This is a serious requirement that should be addressed as early as possible, because a fourth offense for the same violation will constitute grounds for suspension or revocation of the company’s registration or secondary license.

Questions now arise on the scope of the transactions covered by the rules. It should be noted that the Bureau of Internal Revenue (BIR) also issued transfer pricing (TP) regulations, which provide guidelines in determining the appropriate revenues and taxable income of parties involved in related party transactions by prescribing the “arm’s length principle” as the standard to determine transfer prices of related parties. Hence, only those related party transactions with an impact on revenues and taxable income are covered by the BIR TP rules.

The SEC Circular, however, seems to be broader when regarding the nature of the covered transactions given that it encompasses all transfers of resources, services or obligations between a reporting PLC and a related party. But when talking about the value of the transaction, the SEC Circular limits the coverage to transactions with related parties amounting to 10% or higher of the company’s total assets, while there is no such threshold under the BIR TP rules.

The SEC also has yet to clarify the standards to determine the arm’s length nature of the material RPTs. While the Circular requires that the material RPT policy shall have clear guidelines in ensuring the arm’s length terms, there is no established definition for what is considered arm’s length. It would seem that the SEC equates the same to “fairness” as the Circular also requires the appointment of an external independent party to evaluate the fairness of the terms of the material RPT.

We note again that the BIR TP regulations prescribe the methods for determining arm’s length price for related party transactions. The regulations, which apply to both cross-border and domestic transactions of associated enterprises, are largely based on the arm’s length methodologies set under the Organization for Economic Cooperation and Development (OECD) Transfer Pricing Guidelines. It thus remains to be seen whether BIR methodologies may be adopted in determining the arm’s length nature of the material RPTs to comply with SEC rules.

There are also concerns on the disclosures required in the Advisement Report. Although the Circular provides the minimum information that must be included in the report, issues on the completeness and correctness of the information contained therein may still arise. Thus, PLCs should be circumspect in preparing the Advisement Report as even an incomplete or incorrect report warrants a penalty. It behooves the SEC to provide more guidance on the rules given the penalties that may be imposed on PLCs for noncompliance.

While some may feel that these new guidelines add more onerous reporting requirements, we should understand the underlying intent to protect the corporate sector, the securities, the capital market participants, the securities and investment instruments market, and the investing public from transactions detrimental to and practices inconsistent with business development.

Despite much work still needed to be done to improve our country’s ranking, the SEC is optimistic that the new rules will help improve the Philippines’ performance in the World Bank Group’s Ease of Doing Business survey, especially in the indicator for Protecting Minority Investors. The Philippines improved to 132nd out of 190 economies in terms of protecting minority investors in the Doing Business 2019 report from 146th in the preceding report, even as its overall rank dropped 11 spots to 124th from 113th between years.

This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinion expressed above are those of the authors and do not necessarily represent the views of SGV & Co.

 

Joyce A. Francisco is a Tax Senior Director of SGV & Co.

TV, Facebook are top news sources for Filipinos

OVER 13 million Filipinos turn to Facebook, more than newspapers and radio combined, as their news source, according to the latest Social Weather Stations (SWS) report released Sunday.

However, the First Quarter 2019 SWS survey conducted March 28 to 31 shows that television is still the main platform for news consumption.

“Compared to other news media, a majority 60% of adults (est. 40.4 million individuals) still consume news daily through television,” the report says.

An estimated 9.7 million or 15% listen to the radio for news everyday, while only 2% or an estimated 1 million read the newspapers.

For Facebook, “21% of adult Filipinos or an estimated 13.9 million individuals” use the social media platform to read news and engage in political and social activities.

As of March this year, SWS said 99% of adult internet users have a social media account on Facebook.

“This is equivalent to 45% of the total adult population (est. 30.5 million individuals),” it said.

By area, Metro Manila had the highest proportion of adults with Facebook account at 64% (or about 5.8 million individuals). The rest of Luzon was at 48% or about 14.4 million individuals, followed by Mindanao at 39% or 5.8 million individuals, and the Visayas at 33%or 4.2 million individuals.

By educational attainment, “the proportion of adults with a Facebook account is highest among college graduates at 78% (est. 5.9 million individuals). This is followed by 58% (est. 16.9 million individuals) among high school graduates, 32% (est. 6.4 million individuals) among elementary graduates, and 11% (est. 11.0 million individuals) among non-elementary graduates.”

YouTube is also popular among adult Filipino internet users with 38% or 11.7 million having their own YouTube account. Other top used social media platforms are: Instagram (4.7 million individuals), Twitter (2.7 million), and Viber (2.1 million).

POLITICAL ISSUES
The SWS survey also showed that 30.4 million have at least one social media platform they use to “Like or promote material related to political or social issues that others have posted.”

Other political activities Filipinos do on social media are: “Follow any elected officials, candidates for office, or other political figures” at 14% or 4.3 million Filipinos; “Post own thoughts or comments on political or social issues” — 6% or 1.8 million; “Repost content related to political or social issues that was originally posted by someone else” — 6% or 1.8 million; “Post own thoughts or comments on political or social issues” — 4% or 1.2 million Filipinos; “Encourage other people to take action on important political or social issues” — 2% or 537,000 Filipinos; and “Encourage people to vote” — 1% or 365,00.

The non-commissioned survey had 1,440 participants from across the country and has a sampling error margin of ±2.6% for national figures and percentages. — Gillian M. Cortez

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