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Beyond and within borders: PHL’s participation in the BEPS Inclusive Framework may need reconsidering

FREEPIK

As digital technologies evolve and reshape the global economy, they pose increasingly complex taxation challenges. The Organisation for Economic Co-operation and Development (OECD) seeks to address these tax challenges through the Base Erosion and Profit Shifting (BEPS) 2.0 project, the Two-Pillar Approach: Pillar One (re-allocation of taxing rights) and Pillar Two (global minimum taxation). The Two-Pillar Approach aims to ensure that profits are subject to taxation in locations where economic activities occur and value is created to promote equitable distribution of taxing rights among countries.

Under Pillar One, the largest Multinational Entities (MNEs) that have at least €20 billion in revenue are to re-allocate some taxing rights from their home countries to the markets where they have business activities and earn profits, regardless of whether firms there have a physical presence there. This will thus ensure a fairer distribution of profits and taxing rights among countries. The key elements of Pillar One can be grouped into three components:

• A new taxing right for market jurisdictions over a share of residual profit calculated at a MNEs group (or segment) level (Amount A).

• A fixed return for defined baseline marketing and distribution activities taking place physically in a market jurisdiction, in line with the arm’s length principle (Amount B).

• Improved tax certainty processes to improve tax certainty through innovative dispute prevention and dispute resolution mechanisms (Tax certainty component).

On the other hand, Pillar Two introduces a Global Anti-Base Erosion Rule wherein a 15% global minimum effective tax rate (ETR) is imposed to MNEs with Group Revenues of over €750 million in each country in which they operate. It ensures that large internationally operating businesses pay a minimum level of tax regardless of where they are headquartered or the jurisdictions they operate in. Additionally, this rule is complemented by the Undertaxed Payments Rule, Qualified Domestic Minimum Top-up Tax, Subject to Tax rule, and Switch-over rule.

On November 8, 2023, the Philippines joined the OECD/G20 Inclusive Framework on BEPS, among others, on allocation of taxation rights on cross-border/digital economy transactions meeting certain established thresholds (Pillar One Commitment) by undertaking to work on and adopt appropriate legislation consistent with the BEPS framework.

Notably, it is interesting how the Philippines’ participation in the BEPS Inclusive Framework will affect registered business enterprises who could fall under defined MNEs under BEPS. In 2021, the Philippine government granted tax incentives pursuant to its passage of the CREATE (Corporate Recovery and Tax Incentives for Enterprises) Act. Registered Business Enterprises (RBEs) are offered tax incentives to attract foreign investment considering that the Philippines is still recovering from the COVID-19 pandemic. The incentives include an income tax holiday (ITH), to be followed by a 10-year 5% special corporate income tax (SCIT) on gross income earned for export enterprises or enhanced deductions (ED) for both export and domestic market enterprises.

Thus, if the Philippines adopts the Pillar Two Commitment, the offered tax incentives through CREATE Act may, in a sense, lose its significance for the affected RBEs. Under Pillar Two, affected RBEs will have to pay top-up taxes if their Effective Tax Rate falls below 15%. On the other hand, if this is implemented, Philippines will have its share of the allocation of the top-up taxes.

Certainly, while the objectives of the Two-Pillar Approach is laudable from a global perspective, it may be best that its implementation be aligned with the country’s policy and objectives of encouraging foreign investments and trade in the Philippines, especially at this time when it is still recovering from the effects of the COVID-19 pandemic.

The views and opinions expressed in this article are those of the author. This article is for general informational and educational purposes only and not offered as and does not constitute legal advice or legal opinion.

 

Kaye Geozen T. Ebuengan is an associate of the Tax department of the Angara Abello Concepcion Regala Cruz Law Offices.

(02) 8830-8000

ktebuengan@accralaw.com

Vinyl revival rocks Britain’s inflation basket

LONDON — Vinyl records will re-enter Britain’s inflation charts for the first time in 32 years this month, as part of the annual shake-up of the basket of goods and services used to calculate the pace of price rises.

The change in the Office for National Statistics’ (ONS) inflation basket offers a snapshot of shifts in Britons’ tastes and needs.

“Often the basket reflects the adoption of new technology, but the return of vinyl records shows how cultural revivals can affect our spending,” ONS statistician Matt Corder said.

Records return to the inflation basket for the first time since 1992, joining compact discs, music streaming subscriptions and digital downloads after a resurgence in demand for more tangible forms of music.

Leaving the basket this year is hand sanitizer, as the ONS reported “a vast reduction in shelf space dedicated to this product as demand has fallen since the pandemic.”

Hot rotisserie chickens also left the basket, as some supermarkets discontinued the product in favor of freshly cooked chicken thighs and legs for the lunchtime food market.

Joining the basket are air fryers — small countertop electric ovens that aim to replace a deep-fat fryer, minus the oil — which the ONS said had seen a 30% rise in demand between 2021 and 2022.

Other signs of a trend towards healthier or more fastidious eating include the addition of sprayable cooking oil, rice cakes and gluten-free bread.

In total, the ONS added 16 items and removed 15 from the basket of 744 different goods and services. — Reuters

US-based brain-implant companies create group to support nascent industry

UNSPLASH

MAJOR implanted brain-computer interface companies are creating an industry group to address issues facing the nascent field as it tries to build confidence among patients, regulators and the general public.

The Implanted Brain Computer-Interface Collaborative Community, or iBCI-CC, also includes the Food and Drug Administration (FDA) as a member, according to an announcement on Monday. The FDA regulates medical devices, including brain implants.

The iBCI-CC will work on topics ranging from interoperability to ethics to data privacy, according to its website, subjects that have taken on new urgency as the field grows closer to commercialization. Earlier this year, Elon Musk said that Neuralink Corp. — a startup he co-founded — had implanted a device in a human patient. Synchron, Inc., meanwhile, has several devices in human brains.

One key area issue is deciding on the objectives of the technology, said Paradromics, Inc. Chief Executive Officer Matt Angle. When it’s meant to improve a patient’s communication, for instance, “how do you know it’s working well enough?” he said. “Is it words per minute? Is it how happy the patient is?”

Paradromics plans to join the group, he said. And he expects Neuralink, Blackrock Neurotech, Precision Neuroscience Corp. and Synchron to sign onto the endeavor as well, Mr. Angle said. Patient advocates and ethicists are also part of the initiative, according to the announcement.

The group came together after key players in the field met last year at a conference hosted by the US Commerce Department, Mr. Angle said.

Neurologist Leigh Hochberg — principal investigator at BrainGate, a consortium working on an implanted BCI system — is a key organizer, along with neurotechnology patient advocate Jennifer French and BostonGene Chief Scientific Officer Joe Lennerz. Health care provider Mass General Brigham convened the group. — Bloomberg News

How PSEi member stocks performed — March 12, 2024

Here’s a quick glance at how PSEi stocks fared on Tuesday, March 12, 2024.


Philippine Merchandise Trade Performance (January 2024)

THE PHILIPPINES’ trade deficit in goods narrowed sharply in January, as exports returned to positive territory while imports growth contracted, the Philippine Statistics Authority (PSA) reported on Tuesday. Read the full story.

 

Philippine Merchandise Trade Performance (January 2024)

PHL shares rebound as investors buy bargains

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PHILIPPINE SHARES recovered on Tuesday on bargain hunting and following foreign direct investments (FDI) data for December and full-year 2023.

The benchmark Philippine Stock Exchange index (PSEi) rose by 0.1% or 7.35 points to end at 6,879.59, while the broader all shares index climbed by 0.15% or 5.59 points to close at 3,580.31.

“The local bourse inched up by 7.35 points (0.1%) to 6,879.59 as investors hunted for bargains. Many also cheered the December 2023 FDI figures which posted a 29.9% year-on-year surge in net inflows,” Philstocks Financial, Inc. Research and Engagement Officer Mikhail Philippe Q. Plopenio said in a Viber message.

Data from the Bangko Sentral ng Pilipinas (BSP) showed FDI net inflows dropped by 6.6% to $8.9 billion last year from $9.5 billion in 2022.

Despite the annual decline, FDI net inflows exceeded the BSP’s projection of $8 billion for the full year.

In December alone, FDI net inflows jumped by 30% to $826 million from $636 million in the same month in 2022.

Month on month, it was 29.9% lower than the $1.056 billion in November.

Still the market closed with trimmed gains, implying that investors are being cautious ahead of the US inflation data,” Mr. Plopenio added.

“The market is still on… and consolidation in light of a hawkish Bangko Sentral ng Pilipinas and jitters ahead of US consumer inflation data for last month,” First Metro Investment Corp. Head of Research Cristina S. Ulang likewise said in a Viber message.

February US consumer price index (CPI) data were set to be released overnight.

US CPI increased 0.3% in January after gaining 0.2% in December. In the 12 months through January, the CPI increased 3.1% after rising by 3.4% in December.

Majority of the market’s sectoral indices closed higher on Tuesday, led by services, which rose by 2.04% or 36.65 points to 1,831.02. Holding firms climbed by 0.13% or 8.85 points to 6,598.95; property went up by 0.11% or 3.08 points to 2,770.55; and mining and oil increased by 0.03% or 2.60 points to 8,324.07.

Meanwhile, financials dropped by 1.07% or 21.75 points to 1,996.05, and industrials fell by 0.07% or 6.75 points to 9,024.13.

“Among the index members, PLDT, Inc. achieved the top spot, jumping by 6.3% while Wilcon Depot, Inc. was at the bottom, losing 4.06%,” Mr. Plopenio said.

Value turnover rose to P5.53 billion on Tuesday with 945.76 million issues changing hands from P3.76 billion with 507.92 million shares traded on Monday.

Advancers beat decliners, 109 against 72, while 54 names were unchanged.

Net foreign buying stood at P348.86 million on Tuesday versus the P277.68 million in net selling recorded on Monday. — R.M.D. Ochave

Peso climbs to three-month high

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THE PESO climbed to a three-month high against the dollar on Tuesday on expectations of softer US consumer price index (CPI) data for February.

The local unit closed at P55.31 per dollar on Tuesday, strengthening by six centavos from its P55.37 finish on Monday, Bankers Association of the Philippines data showed.

This was the peso’s strongest close in more than three months or since its P55.30-per-dollar finish on Dec. 7.

The peso opened Tuesday’s session weaker at P55.42 against the dollar. Its worst showing was at P55.51, while its intraday best was at P55.30 versus the greenback.

Dollars exchanged rose to $1.13 billion on Tuesday from $1.09 billion on Monday.

“The peso strengthened ahead of a likely softer US consumer inflation report overnight,” a trader said in an e-mail.

The dollar was also mostly weaker ahead of the US CPI release as it could affect the US Federal Reserve’s next move, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

For Wednesday, the trader sees the peso moving between P55.15 and P55.40 per dollar, while Mr. Ricafort sees it ranging from P55.25 to P55.45. — AMCS

Philippines says it spotted 50 Chinese ships within EEZ in South China Sea

SCREENGRAB FROM PHILIPPINE COAST GUARD FACEBOOK PAGE

THE PHILIPPINE military on Tuesday said it had spotted about 50 Chinese vessels within the country’s exclusive economic zone (EEZ) in the South China Sea, many of them surrounding the disputed Scarborough Shoal.

Five Coast Guard ships, 18 maritime militia vessels and 10 fishing boats from China were seen near the shoal, which is a traditional fishing ground, AFP spokesperson Francel Margareth Padilla told a news briefing, citing monitoring data as of 4 p.m. on March 11.

Six Chinese fishing vessels and one coast guard ship were spotted at Second Thomas Shoal, and one coast guard ship and six fishing boats near Thitu Island, she added.

Ms. Padilla said the Armed Forces of the Philippines (AFP) would continue its rotation and resupply mission to all features in the western section of the country’s exclusive economic zone in the South China Sea.
After the rotation and resupply mission at Patag and Lawak stations on Feb. 18 to 21, the military’s Western Command [conducted] another mission at Rizal Reef and Likas station on March 3 to 6, she said.
“The next rotation and resupply at Pag-asa (Thitu), Kota, Panatag and Parola will be conducted in the first week of April,” she added.

The Philippine vessels were part of a regular mission to deliver food and other supplies to Filipino troops stationed at a grounded World War II-era ship at Second Thomas Shoal.

China, which claims more than 80% of the South China Sea, has ignored a 2016 ruling by a United Nations-backed tribunal that voided the claim for being illegal.

Last week, two Chinese Coast Guard and four maritime militia vessels harassed and blocked Philippine Coast Guard (PCG) vessel BRP Malabrigo while it was en route to Scarborough Shoal, Raymond M. Powell, a fellow at Stanford University’s Gordian Knot Center for National Security Innovation, said in an X post.

The Chinese ships “repeatedly employed dangerous swarming and bow-crossing maneuvers over 21 hours starting after midnight 7 March,” he added.

At least four Philippine Navy officers were injured early this month after China’s coast guard fired water cannons at one of two wooden civilian boats used in a resupply mission for Filipino troops at a remote outpost in the South China Sea, according to the Philippine National Security Council.

The water cannons from two Chinese Coast Guard vessels shattered the windshield of Unaizah Mae 4, causing minor injuries to at least four personnel on board, it said.

It also accused a Chinese coast guard vessel of executing “dangerous maneuvers” against the escort ship, leading to a minor collision that resulted in “superficial structural damage” to the hull of the Philippine Coast Guard vessel.

The incident happened while President Ferdinand R. Marcos, Jr. was in Melbourne for a three-day summit between Australia and Southeast Asian nations. On March 4, he vowed to push back if China continues to violate Philippine sovereignty and sea rights.

Meanwhile, the Philippine Navy said it is set to take delivery of two guided missile corvettes being built at the HD Hyundai Heavy Industries shipyard in South Korea.

“The first corvette will be coming in during the second semester of next year,” navy spokesman John Percie Alcos told the same briefing.

They have been training officers who will man the new ship, he said.

Mr. Marcos told Australia’s Parliament on Feb. 29 he would not allow any foreign power to take “one square inch” of the country’s territory, and that Manila was firm in defending its sovereignty.

“I will not allow any attempt by any foreign power to take even one square inch of our sovereign territory,” he said in a speech.

Australia and the Philippines started their first joint sea and air patrols in the South China Sea in November, aimed at countering an increasingly assertive China, which claims the entire sea as its own.

The South China Sea is a conduit for more than $3 trillion (P168.5 trillion) worth of ship-borne commerce each year and is a major source of tension between the Philippines and China. — Kyle Aristophere T. Atienza

Manila: China proposals to ease sea tensions contrary to its interests

AN AERIAL VIEW shows the BRP Sierra Madre on the contested Second Thomas Shoal, locally known as Ayungin, in the South China Sea, March 9, 2023. — REUTERS

THE PHILIPPINES’ Department of Foreign Affairs (DFA) on Tuesday said it had received proposals from China to ease tensions in the South China, but these went against the Southeast Asian nation’s interests.

“While a few proposals were deemed somewhat workable, many of the remaining Chinese proposals were determined, after careful study, scrutiny and deliberation within the Philippine government, to be contrary to our national interests,” it said in a statement. “In no way did the Philippine government ignore China’s proposals.”

The DFA was responding to a Manila Times news report quoting an unnamed Chinese official who had claimed China’s proposals to settle tensions in the waterway were “met with inaction” by Manila.

China had presented 11 concept papers on possible solutions to ease tensions in the South China Sea, which the Philippine government allegedly ignored, according to the story published on Monday.

The DFA said the agreements to settle differences in the South China Sea must abide by the Philippine Constitution, the United Nations Convention on the Law of the Sea and a 2016 arbitral award voiding China’s claims on the waterway.

The Philippine government had also presented counterproposals, which China rejected, the DFA said.

China claims more than 80% of the South China Sea based on a 1940s map, which a United Nations-backed arbitration court voided in 2016.

The Philippines has been unable to enforce the ruling and has since filed hundreds of protests over what it calls encroachment and harassment by China’s coast guard and its vast fishing fleet.

Tensions in the South China Sea have intensified after incidents of the Chinese coast guard firing water cannons at Philippine vessels and blocking resupply missions to a dilapidated World War II-era ship at Second Thomas Shoal.

Chinese President Xi Jinping last week called on his country’s armed forces to coordinate preparations for military conflicts at sea and help in the development of the maritime economy.

In December, the Philippine Senate passed on third and final reading a bill that seeks to boost the country’s defense program through investments in local defense equipment manufacturing.

“Instead of considering the Philippine counterproposals, however, the Chinese side presented its own counterproposals, which again did not reflect our interests, especially on issues such as the South China Sea,” the DFA said.

Meanwhile, China said any plan for resource exploitation in the South China Sea should not involve countries outside the region, as the Philippines counts on the United States and its allies for gas and oil exploration.

“The exploration of resources in the South China Sea should not harm China’s territorial sovereignty and maritime rights and interests and no one shall draw forces outside the region into the issues,” the Chinese Foreign Ministry spokesman, Wang Wenbin, told a news briefing in Beijing on Monday, based on a transcript.

Philippine Ambassador to the US Jose Manuel “Babe” D. Romualdez earlier said Manila was “working closely with our allies, not only the US but also Japan and Australia” to exploit gas and oil in the South China Sea.

It’s part of a broader plan to reduce energy costs under the government of President Ferdinand R. Marcos, Jr., who has veered away from his predecessor’s pivot to China, Bloomberg News reported.

“Relevant countries should not undermine China’s territorial sovereignty and maritime rights and interests in their effort of exploring resources in the South China Sea,” Mr. Wang said. “Drawing forces outside the region into the South China Sea issue will only complicate the situation.”

Mr. Romualdez, a cousin of Mr. Marcos, earlier said the Philippine government might invite US companies to invest in the exploration. It is also in talks with other claimants like Vietnam, he said.

The Philippine Supreme Court in January last year voided a 2005 state oil exploration deal with China and Vietnam.

The agreement between the state oil agencies of Vietnam, China and the Philippines violated the 1987 Constitution, which lawmakers now seek to amend.

The Philippines’ only indigenous source of natural gas, the Malampaya gas field, is expected to run dry in 2027, a crisis that experts said could result in 12 to 15 hours of daily brownouts across the main island of Luzon.

Reed Bank, which falls within the Philippines’ exclusive economic zone, could hold up to 55.1 trillion cubic feet of natural gas and up to 5.4 billion barrels of oil, according to the United States Energy Information Administration. — John Victor D. Ordoñez and Kyle Aristophere T. Atienza

Agencies told to limit seaman deployment to hotspots

A container ship crosses the Gulf of Suez towards the Red Sea before entering the Suez Canal, April 24, 2017. — REUTERS

THE PHILIPPINE government on Tuesday said it would limit the deployment of Filipino seamen to vessels that sail through known global hotspots after a recent missile attack by Iran-backed rebels on a cargo ship in the Gulf of Aden.

“Manning agencies are following the directive of the government to limit the presence of Filipino seafarers or [give] them the option to refuse,” Foreign Affairs Undersecretary Eduardo A. de Vega told a news briefing at the presidential palace.

Houthi rebels attacked the Barbados-flagged bulk carrier M/V True Confidence on March 6 while in the Gulf of Aden, killing two Filipino crew members whose bodies were yet to be recovered.

“Houthi attacks occur practically daily on ships traversing the area,” Mr. De Vega said. “And this is the first time we’ve had Filipino injuries or casualties.”

He said the Department of Migrant Workers in mid-February updated its list of “warlike and high-risk areas” to include the Yemeni coast.

“Under such classification, in a war-like operation area, the seafarers have to be given the right to refuse sailing, with repatriation at company cost and compensation equal to two months of wages,” he added.

“If they continue to go, they have to have a bonus equivalent to their basic wage or double compensation, obviously, also for death and disability benefits.”

Other high-risk areas include the Gulf of Guinea near Liberia-Ivory Coast and the Sea of Azov and Kerch Strait in Eastern Europe.

The Northern Black Sea Region, all ports in Ukraine, and the Black Sea are still considered high-risk areas after Russia’s invasion of Ukraine.

Mr. De Vega said they expect more Filipino sailors to decline opportunities in areas where Houthi attacks have been persistent.

“The statistics show they are declining because there are few Filipino seafarers now aboard ships plying the route,” he said. 

Each of the 13 Filipino crew members who survived the missile attack on Mar. 6, including three who were still in hospital, were given P55,000 in cash aid, Mr. De Vega said.

Meanwhile, the Israel Embassy in Manila offered its condolences to the families of the Filipino seamen who died and the government of President Ferdinand R. Marcos, Jr.

“During these trying times, we express our solidarity with the Philippines and join in condemning terrorism,” it said in an e-mailed statement.

“The attacks by the Houthis on vessels in the Red Sea and the Indian Ocean violate the freedom of navigation, threaten the welfare of seafarers and impact the shipment sector, supply chains and prices of oil,” it added.

The Houthis, which are backed by the Iranian government, have been attacking cargo ships in the Red Sea and Gulf of Aden since November in response to what it calls “heinous acts” by Israel in Gaza. — Kyle Aristophere T. Atienza

House panel OK’s bill boosting social enterprises

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A PANEL of the House of Representatives approved on Tuesday a substitute bill consolidating measures to promote the growth of social enterprises as a means to alleviate poverty in the country.

In approving the unnumbered substitute bill, the House Committee on Ways and Means intends to enhance social enterprises’ poverty-alleviating capabilities by offering a tax deduction.

“The bill aims to provide the framework for the implementation of national poverty reduction through social entrepreneurship, integrating its programs into the overall poverty reduction strategy of the government,” Bukidnon Rep. Jose Manuel F. Alba told the committee.

The panel recommended granting social enterprises an additional deduction equal to 25% of total salaries and wages paid to employees.

Social enterprises in this context refer to organizations that employ manpower from the marginalized sectors in their business operations. Under the bill, social enterprises are mandated to invest back “at least 60% of net revenues into sustaining their social missions” to qualify as such an enterprise.

“This is not an ordinary business, it is a business that supports a particular social mission — which is to address poverty in our country,” said Mr. Alba.

He said the measure also includes hybrid financing models as well as opportunities that could help stimulate the development of social enterprises by “mandating the government to allot resources” to promote its growth.

The panel noted in their discussion the need for the government to support the capacity-building programs of social enterprises so that they may further generate jobs which also aid in reducing poverty.

“Social enterprises will be treated with a more special concern because we see the importance of multiplier effect that social enterprises can provide to micro, small, and medium enterprises (MSMEs) in terms of job generation and poverty alleviation,” Department of Trade and Industry Liaison Mikaela Sulit told the panel. — Kenneth Christiane L. Basilio

Agri-machinery plant under way

INITIAL work to build an agriculture machinery assembly plant that aims to boost farming in the Philippines has begun through a P1.6-billion partnership between the Department of Agriculture (DA) and the Korea Agricultural Machinery Industry Cooperative (KAMICO).

In a statement on Tuesday, the DA said that the parties have accomplished the prerequisites needed to establish the center, including site visits in Cabanatuan City in Nueva Ecija and Tiaong in Quezon and meetings with concerned local government units for terms and conditions.

“This is the result of the memorandum of understanding (MOU) signed last year between DA and KAMICO that aims to set up the Korea Agricultural Machinery Manufacturing Cluster in the country,” said Agriculture Secretary Francisco P. Tiu Laurel, Jr.

The initial project investment of $30 million (P1.6 billion) has three phases, with the last phase involving technology transfer, cooperative production, and domestic supply and export promotion. 

“Ultimately, the project aims to set the standard for agricultural machinery and equipment that will be made available to Filipino farmers, and subsequently exported to other agricultural countries,” the department said.

The project, besides boosting local production, is also aimed at boosting employment and promoting specialization among Filipino technicians.

Mr. Tiu Laurel said that President Ferdinand R. Marcos, Jr., who witnessed the MOU signing last year, acknowledged that the partnership between the Philippine government and KAMICO would boost local food production.

“(Mr. Marcos) also recognized the importance of mechanization, stressing that it would result in better yield, lower production cost, and more competitive Filipino farmers,” he added.

For its part, the DA committed to extend assistance to KAMICO through its relevant agencies to help with the project’s realization.

KAMICO, which has 700 company members to date, aims to boost production and income in developing countries through agricultural machinery. — Justine Irish D. Tabile