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Palace: Duterte won’t give an inch of territory to other states

PRESIDENT Rodrigo R. Duterte won’t give an inch of Philippine territory to other states, the presidential palace said on Monday after Manila protested alleged Chinese aggression in the South China Sea.

“Our President is consistent, he will not give even an inch of our national territory or sovereign rights to any other state,” Presidential Spokesman Harry L. Roque said at an online briefing on Monday.

The sea dispute won’t affect bilateral talks on trade and investment with China, he added.

“Unresolved issues on our territory won’t hamper our diplomatic bilateral relations with China,” Mr. Roque said in Filipino. “Trade and investments can be pushed.”

The Department of Foreign Affairs last week protested a three-month old incident at a disputed shoal in the South China Sea, where the Chinese coast guard allegedly seized fish aggregating devices from Filipino fishermen.

The shoal is a prime fishing site seized by Beijing in 2012 after a standoff that prompted Manila to sue China at an international tribunal.

China in response called out the Philippine government, asking it to “stop illegal provocations.”

China claims more than 80% of the South China Sea based on old maps that it says are prove sovereignty. Vietnam, Malaysia, Brunei and Taiwan also have claims.

Meanwhile, military commanders said the Philippines should maintain an “unequivocal” position over its claims in the South China Sea amid China’s continuing encroachment.

“The first capability that we need is really the wherewithal to extend this message — that this government is serious about protecting it’s rights,” Southern Luzon Commander Lt. Gen. Antonio G. Parlade, Jr. told the Commission on Appointments.

“It doesn’t matter if we only have a few floating vessels, a few fighter jets. As long as we are clear and we are unequivocal about this position, then the message would be very clear to other governments,” he added.

Mr. Parlade, whose appointment was being considered by lawmakers, cited the need to integrate efforts among the Defense, Foreign Affairs and Environment departments and the Philippine Coast Guard in protecting Philippine waters.

The country loses $79 billion in annual fish catch from Cagayan de Oro to Zambales alone, Mr. Parlade said, citing a University of the Philippines study.

“That’s because we don’t have maritime or fishery policies,” he said. “We don’t have enough security elements to protect our fishermen.”

DFA did not give any other details of the Scarborough Shoal incident, but also protested China’s “continuing illicit issuances of radio challenges to Philippine aircraft conducting legitimate regular maritime patrols.”

China’s coast guard routinely warns foreign planes and ships passing through international waters. 

The Philippine protest came amid what the US and its allies see as provocative Chinese activities and military exercises in disputed parts of the waterway. Vietnam on Thursday complained about the presence of Chinese bombers on the Paracel islands.

Armed Forces spokesman Maj. Gen. Edgard A. Arevalo told lawmakers at the appointment hearing the agency needs more aircraft and patrol craft so it can continue sea patrols.

The appointment body later confirmed the appointments of Mr. Parlade, Mr. Arevalo and 13 other senior officers of the Armed Forces. — NPA and Charmaine A. Tadalan

COVID-19 cases top 194,000; 3,010 dead

THE Department of Health (DoH) reported 4,686 new coronavirus infections on Monday, bringing the total to 194,252.

The death toll rose to 3,010 after 13 more patients died, while recoveries increased by 729 to 132,042, it said in a bulletin.

There were 59,200 active cases, 91.5% of which were mild, 6.1% did not show symptoms, 1% were severe and 1.4% were critical.

Metro Manila had the most number of new cases with 2,519, followed by Laguna with 286, Cavite with 218, Bulacan with 189 and Rizal with 179, DoH said.

Eight of the new deaths were from Metro Manila, two were from the Calabarzon region and one each were from Bicol, Central Visayas and Davao.

DoH said the death rate in the country was at 1.55%, lower than the 3.4% average globally. The local infection rate was at 10.5%, higher than the less than 5% benchmark of the World Health Organization.

The reproduction number of the disease was at 0.864 as of Aug. 10, meaning one person can infect one more, the agency said.

It added that it takes 9.79 days for cases to double, and 14 days for deaths to double.

More than 2.1 million individuals have been tested for the virus, the agency said. — Vann Marlo M. Villegas

Lawmakers lecture high-ranking officer on ‘prior restraint’

SENATORS on Monday rejected calls to regulate social media for terror activities through the rules that will enforce the country’s expanded law against terrorism.

Senator Franklin M. Drilon said the law does not contain a provision allowing authorities to regulate social media.

“We do not recall any provision of the Anti-Terror Act which would authorize the regulation of social media,” he told high-ranking military officers undergoing confirmation hearings at the Commission on Appointments.

Southern Luzon Command head Lt. Gen. Antonio G. Parlade, Jr. told lawmakers he agrees with Armed Forces chief of staff Lt. Gen. Gilbert Gapay’s proposal to regulate social media through the law’s implementing rules.

“We all know that social media is being used by elements, organizations to destabilize the government,” he told the appointment body when asked by Mr. Drilon about his position on Mr. Gapay’s earlier statements.

“As we speak, even on social media, they are talking about how to make bombs, molotov bombs,” he added.

But Mr. Drilon reminded him that the law does not have a provision on social media use, adding that regulating the platform constitutes “prior restraint” that violates the Bill of Rights.

Senator Panfilo M. Lacson, the principal author of the measure, backed Mr. Drilon and said the law requires authorities to establish “intent and purpose” in committing terrorism.

“Just a piece of advice: When you issue statements, be very careful, and be very conscious because when you say you want to regulate social media, that’s what Senator Drilon is calling prior restraint,” he said.

“And that is not the legislative intent of the anti-terrorism law when we deliberated on it on the floor and when we passed it,” he added. Mr. Lacson asked the military officer to relay this advice to Mr. Gapay.

Meanwhile, the Office of the Solicitor General asked the Supreme Court to cancel the oral arguments for various lawsuits questioning the validity of the law.

In an urgent motion, the agency said the hearings were unnecessary and “unsafe and impractical” amid a coronavirus pandemic. 

“To be sure, conducting oral arguments through videoconference would not necessarily address the logistical conundrum and health risks caused by this pandemic,” it said.

The court should instead require the plaintiffs and defendants to file their pleadings, it added.

The Solicitor General also argued the lawsuits contained factual questions that are better handled by lower courts.

Court spokesman Brian Keith F. Hosaka earlier said the tribunal would hold hearings in the third week of September.

More than two dozen lawsuits were filed against the government questioning the legality of the law that allegedly arms the state to quell dissent and violate human rights.

The Anti-Terrorism Act, which took effect on July 18, considers attacks that cause death or serious injury, extensive damage to property and manufacture, possession, acquisition, transport and supply of weapons or explosives as terrorist acts.

It also allows the government to detain a suspect without a warrant for 14 days from three days previously. — NPA and Vann Marlo M. Villegas

Regional Updates (08/24/20)

Twin bombings kill 9, wound dozens in Jolo

A bombing in a town on a restive southern Philippines island killed nine people and wounded dozens on Monday, among them soldiers and civilians, the military said, with Islamist militants suspected of being behind the attack. Two explosions believed to be homemade bombs were triggered within one hour of each other in the main urban center on the island of Sulu, a stronghold of the Abu Sayyaf, a militant group that has pledged allegiance to Islamic State. It was the biggest attack in the town since January 2019, when twin suicide bombings before Sunday service at a Jolo church killed more than 20 people and wounded at least 100. A faction of Abu Sayyaf was blamed for that attack, which Philippine authorities said involved Indonesian bombers. The first blast on Monday happened around noon in front of a food center, outside of which two military trucks were parked, the army said. A second blast followed later, but there were no immediate reports of casualties from that incident. That first bomb killed five soldiers and four civilians and 16 military personnel were among dozens wounded, said Lieutenant General Corleto Vinluan, head of the Western Mindanao command. Lieutenant Colonel Ronaldo Mateo, a military spokesman, said the bomb was attached to a parked motorcycle. There was no immediate claim of responsibility and police said an investigation was underway. Abu Sayyaf was founded in the 1990s with its roots in a separatist cause that it long since abandoned. It is active in the Sulu archipelago of Mindanao, where hundreds of military have been deployed to try to destroy the group, which has been linked to Islamic State and al Qaeda. The group’s various factions have grabbed headlines, most recently for suicide bombings, but also for banditry, piracy and kidnap for ransom, for which it has become notorious for beheading captives, among them westerners. — Reuters

PLDT, Globe vow additional lines at COVID-19 hospital command center

THE COUNTRY’S two biggest telecommunication companies — PLDT, Inc. and Globe Telecom, Inc. — have pledged to provide more lines at the government’s One Hospital Command Center for managing calls relating to treatment of the coronavirus disease 2019 (COVID-19). In a virtual briefing on Monday, Palace Spokesperson Harry L. Roque said PLDT Chairman Manuel V. Pangilinan is “committing additional… landlines.” Mr. Pangilinan, also the company’s president and chief executive officer, said in a phone call during the briefing, “We will do that right away.” Globe Telecom Co-Vice Chairman Fernando Zobel de Ayala made the same commitment, saying, “We’ll do, and you know that we’re always assisting, Secretary.” The One Hospital Command Center was launched earlier this month to improve patient access to both private and public hospitals in the capital, where majority of the country’s COVID-19 cases are located. Health Undersecretary Leopoldo J. Vega, in the same briefing, said the center has so far received more than 1,000 calls. Hastings Holdings, Inc., a unit of PLDT Beneficial Trust Fund subsidiary MediaQuest Holdings, Inc., has a stake in BusinessWorld through the Philippine Star Group, which it controls. — Gillian M. Cortez 

Land reform beneficiaries to get reservation areas in Cotabato

A TOTAL OF 4,463 hectares of reservation areas are set to be distributed to agrarian reform beneficiaries in Cotabato, the Department of Agrarian Reform said. Cotabato Provincial Agrarian Reform Program Officer II Reynaldo G. Anfone said there are more than 3,000 beneficiaries from several barangays in the towns of Arakan and President Roxas. The reservation areas to be distributed are under the University of Southern Mindanao (USM) and Cotabato Foundation College of Science and Technology (CFCST). “The USM and CFCST reservation areas with an approximate of 7,200 hectares were allocated to the educational institutions under Proclamation No. 428 signed by then-President Carlos P. Garcia in 1957,” Mr. Anfone said. The beneficiaries include farmers belonging to Mailuminado Farmers Association, Inc., Arakan Progressive Peasant Organization, Tinanan Kulamanon Lumadnong Panaghiusa (TIKULPA), Kilusang Magbubukid ng Pilipinas (KMP) and Apo Sandawa Lumadnong Panahiusa sa Cotabato. — Revin Mikhael D. Ochave

Nationwide round-up

Bayanihan II bill expected at President’s desk by Tuesday

THE PROPOSED second law covering response measures for the coronavirus crisis is expected to be received by the President by Tuesday for review. “I believe the earliest that it can reach the desk of the President will be tomorrow,” Palace Spokesperson Harry L. Roque said in a briefing on Monday. The House of Representatives ratified on Monday the proposed Bayanihan to Recover as One Act (Bayanihan II), which sets up to P165 billion to address the impact of the coronavirus disease 2019 (COVID-19), including assistance to affected sectors and the government’s stimulus plan. The measure hurdled the bicameral conference committee last week and was subsequently ratified in the Senate. The reconciled version of House Bill No. 6953 and Senate Bill No. 1564 will have a P140-billion appropriation and a P25-billion standby fund.

‘PATHETICALLY MEAGER’
Albay Rep. Edcel C. Lagman said that while he voted for the Bayanihan II, the stimulus plan is “pathetically meager.” “This is less than 60% of the P275-billion appropriation for Bayanihan 1 when the contagion started, and is only 12% of the P1.3-trillion appropriation for the ARISE (Accelerated Recovery and Investments Stimulus for the Economy) bill,” Mr. Lagman said in a statement. He also asked state economic managers about the loans and financial aid granted to the Philippines, which may be tapped as additional fund source for the pending stimulus package. The bill will also grant special powers to President Rodrigo R. Duterte, including the authority to realign items of the 2019 and 2020 national budgets. The measure will, among others, continue granting the P5,000-8,000 emergency subsidy to affected low-income households, allocate P13.5 billion to health-related responses, P13 billion for cash-for-work programs, and P9.5 billion for programs under the Department of Transportation. Meanwhile, the tourism industry and the education department will each receive P4 billion. About P39.4 billion will go to  government financial institutions to allow them to extend loans to hard hit businesses, particularly micro, small and medium enterprises. The Department of Agriculture will also receive P24 billion for direct cash assistance or loan interest rate subsidies. — Gillian M. Cortez and Charmaine A. Tadalan 

US marine withdraws appeal on homicide case

CONVICTED US Marine Lance Corporal Joseph Scott Pemberton withdrew his appeal before the Supreme Court over his conviction for the killing of Filipino Jennifer S. Laude in 2014. In a notice dated June 15, the court’s third division said it granted the motion to withdraw filed by Mr. Pemberton on June 2, rendering the case “closed and terminated.” “(A)fter thoughtful consideration of the circumstances of this case, he has decided to withdraw his petition, both as to criminal and civil aspects of the appeal, and accepts and recognizes that his conviction will become final and executory,” the court said, citing the motion. Mr. Pemberton was convicted of homicide in November 2015 for the killing of transgender woman Laude in Olongapo City. A local trial court sentenced him to six to 10 years in prison and directed him to pay the heirs of the victim P4.3 million in damages for loss of earning capacity. The Court of Appeals upheld his conviction and the damages, and further ordered him to pay the heirs of Ms. Laude P75,000 for civil indemnity and moral damages. Mr. Pemberton is detained at Camp Aguinaldo in Quezon City. — Vann Marlo M. Villegas 

Duterte wants ‘quiet life’ after his term

PRESIDENT Rodrigo R. Duterte is not interested in leading a revolutionary government as he is looking forward to “a quiet life” after his term ends in 2022, his spokesperson said. A group calling itself the Mayor Rodrigo Roa Duterte-National Executive Coordinating Committee last week urged the President to lead a revolutionary government. “He’s looking forward to the end of his term and he wants to live a quiet life again. So sa tingin ko po (I think it is) moot and academic as far as the President is concerned,” Spokesperson Harry L. Roque said in a briefing on Monday. Mr. Roque said on Sunday that the administration’s priority at this time is addressing the coronavirus crisis. — Gillian M. Cortez 

Exporters urged to take advantage of Russia GSP

THE Trade department’s export marketing group is encouraging exporters to take advantage of preferential tariffs to sell to Russia.

“One of our strategies in expanding exports is to venture into non-traditional partners like Russia. Thus, we encourage exporters to maximize the benefits from the EAEU GSP,” Department of Trade and Industry – Export Marketing Bureau Director Senen M. Perlada said in a press release on Monday.

Under the Eurasian Economic Union Generalized System of Preferences, or EAEU GSP, the Philippines can export certain products to member countries at a 25% discount on customs duties.

Members of the union include Armenia, Belarus, Kazakhstan, Kyrgyzstan, and the Russian Federation.   

Food products eligible for the customs discount include meat, fish, fruits, coffee, cacao, coconut products, sauces, and condiments. Furniture and houseware goods include wood, basket ware, artificial flowers, statuettes, ceramics, and imitation jewelry. Industrial goods like natural rubber are included.

Given the pandemic restrictions, the EAEU will allow exporters to submit either an electronic or paper copy of Certificate of Origin Form A, a document that would allow exporters to avail of the preferential tariff. The exporter will then have six months from the registration date to submit the original form to the customs authority.

In 2019, Russia was the Philippines’ 21st biggest trading partner. It was the country’s 32nd biggest export destination and 18th biggest source of imports.

The Philippines’ top exports to Russia include electronics, ignition wiring sets, activated carbon, new pneumatic tires, and watches as well as agricultural products such as desiccated coconut, carrageenan, and other fruits and nuts. — Jenina P. Ibañez

PHL, Indonesia study copper, textile tieups

REUTERS

THE PHILIPPINES and Indonesia will discuss cooperation between their copper and textile industries, sharing best practices to better attract manufacturing investment and technology transfer.

The two sides met on Aug. 11, the Philippines’ first since the start of the lockdown, the Department of Trade and Industry (DTI) said in a statement Monday.

The DTI said that the two countries will work on complementing each others’ strengths and resource endowments in copper and textiles.

Expected to be held within the year, the industry dialogues will cover best practices, regulation, and collaboration between the government and private sector.

“In the long term, these dialogues are seen as avenues to boost the manufacturing capabilities of our industrial sectors through the infusion of investment and technology,” DTI said.

Representatives from the two countries also spoke about possible partnerships in investment promotion, quality assurance for halal products, and the creative economy this year.

The two sides also discussed fisheries and border trade.

“The Philippines is committed to consider the proposals given its relevance to both the Philippines and Indonesia as archipelagic states with common borders and taking into account the developments in sub-regional integration,” DTI Undersecretary Ceferino S. Rodolfo said.

The joint working group on trade, investments, handicrafts, and shipping also discussed improving the countries’ business environments.

“Convening the (Joint Working Group) with Indonesia is of strategic importance to the Philippines given the many commonalities we share. With the challenging times ahead, working together as two of the biggest economies in ASEAN to address the unprecedented crisis is the best recourse,” Mr. Rodolfo said.

Indonesia was the Philippines’ eight-largest trading partner in 2019 and the 13th largest export market.

Indonesia was the Philippines’ sixth-largest source of imports last year, valued at $6.6 billion or 6.1% of the total. — Jenina P. Ibañez

PHL, EU sign P1.4-billion grant deal for BARMM, Marawi rehab

THE government and the European Union (EU) have signed a new financing agreement worth 24.5 million euros (P1.405 billion) in the form of grants to support the rehabilitation of Marawi City and the Bangsamoro Autonomous Region in Muslim Mindanao’s (BARMM) coronavirus containment effort.

The Department of Finance (DoF) said in a statement Monday that 5 million euros will help fund the recovery and rehabilitation of Marawi City, while 3 million euros will boost BARMM’s coronavirus disease 2019 (COVID-19) response.

The project will be implemented by the Office of the Presidential Adviser on the Peace Process and the Bangsamoro Transition Authority over five years or 60 months after the agreement is sealed.

The DoF said the agreement was signed on Aug. 11 by Secretary Carlos G. Dominguez III on behalf of the Philippines and Pierre Amilhat, the director for Asia, Central Asia, Middle East/Gulf and the Pacific of the European Commission’s Directorate-General for International Cooperation and Development to represent the EU.

Asked where the rest of the grants will be allocated, the office of the DoF had not responded at deadline time.

“This third grant from the EU this year underpins this major economic bloc’s unwavering commitment to the attainment of genuine and lasting peace and development in the Southern Philippines along with the speedy recovery of conflict-devastated Marawi City,” Mr. Dominguez was quoted as saying.

This brings the EU’s total grants for the government’s peace and development efforts in Mindanao to 85 million euros so far this year.

Meanwhile, proposals on how the 3 million euros earmarked for BARMM’s COVID-19 response will be used have been submitted to the EU by the Philippine Red Cross and the French humanitarian organization Agency for Technical Cooperation and Development.

The DoF said the EU committed to start talks with the European Commission and the World Bank which could serve as third-party administrators of the Bangsamoro Normalization Trust Fund — a multi-donor trust fund where international partners can send funds for the BARMM.

Last month, the EU and the Philippines signed two financing agreements worth 60.5 million euros that will fund selected development programs in Mindanao.

EU officials have said they will be “reorienting” up to 15 million euros worth of grants to the Philippines to support the coronavirus containment effort.

Finance Undersecretary Mark Dennis Y.C. Joven had said the country’s active grants from the EU total 150 million euros so far, with 20-30 million euros more in the pipeline.

The EU is the country’s 11th biggest source of official development assistance. As of March, it had provided grants worth $138.15 million. — Beatrice M. Laforga

Energy efficiency industry asserts eligibility for 10 years’ worth of incentives

THE energy efficiency industry said it is seeking fiscal incentives for 10 years, claiming that the industry is eligible for such treatment under the law regulating the sector as well as the Philippines’ investment priority plan.

The broader energy industry is convening for a two-day virtual consultation to aid the Department of Energy (DoE) in updating the Philippine Energy Plan with the goal of attracting more investment over the next two decades.

The Philippine Energy Efficiency Alliance (PE2) said it wants the plan to reflect the importance of energy efficiency and conservation (EEC) projects in order to ensure a stable investment environment.

“The long-term predictability of EEC tax-based fiscal incentive packages is crucial to mobilizing debt and equity capital investments in the EEC asset class, amid legislative efforts to rationalize fiscal incentives,” the group said in its presentation.

Renewable energy, including energy efficiency technologies, is recognized as a priority sector by the Philippine investment authorities.

Republic Act No. 11285 or the EEC Act provides for a 10-year inclusion of energy efficiency projects in the Board of Investments’ investment priority plan, which lists sectors entitled to tax breaks.

Separately, PE2 asked the DoE to defend the granting of pioneer status for all EEC projects, entitling them to incentives.

Executive Order No. 226, or the Omnibus Investments Code, provides for a six-year tax break for pioneering projects which use a design, formula, scheme, method, process, or system of production that is new and untried in the Philippines.

The industry added that third-party investments of energy service companies (ESCOs) and other investors in EEC assets installed in non-owned and non-leased premises “will need at least six years of income tax holiday for them to approach commercial viability as far as after-tax equity returns are concerned.”

PE2, which advocates for EEC technologies’ integration into the generation mix, claims that EEC projects can produce savings of 182 million tons of oil equivalent by 2040, equivalent to $726 billion.

The industry is also seeking a share of the stimulus package during the post-pandemic recovery. — Adam J. Ang

Northbound section of Skyway Extension seen completed by Dec.

SAN MIGUEL Corp. (SMC) said Monday it expects to complete the northbound section of the P10-billion Skyway Extension project by December.

“Despite delays brought on by the ongoing COVID-19 (coronavirus disease 2019) global pandemic, SMC is on track to deliver the entire northbound section of the Skyway Extension project by December this year,” the company said in a statement, referring to the section of the project from the Soldiers’ Hills area to the Sucat Mainline Toll Plaza.

It said construction at the northbound section is now at an “accelerated pace” to meet the target.

“Originally, target completion for the section was July 2020, but this was delayed due to the enhanced community quarantine starting mid-March,” SMC noted.

The company expects to complete the entire Skyway Extension project by the “middle of next year.”

The project aims to extend the Skyway from Susana Heights on the South Luzon Expressway to Sucat and back and provide direct access to the elevated section of the Skyway. Construction of the four-kilometer elevated viaduct started in June last year.

Once fully completed, the project’s three new northbound lanes will be able to accommodate an additional 4,500 vehicles per hour. The two additional southbound lanes will be able accommodate an additional 3,000 vehicles per hour.

SMC President Ramon S. Ang said: “Because of the delays and restrictions brought on by the lockdown, we’ve had to make a lot of adjustments. But we are on track to deliver the entire northbound section of the Skyway Extension by the end of this year.”

“When we open this northbound section, motorists will enjoy smoother and faster trips from Calamba going to Makati and other parts of Metro Manila. By improving traffic flow and reducing congestion, this project will also help in accelerating trade and tourism, particularly south of Metro Manila. That is something we need to further help our economy during this pandemic, and after it,” the businessman added.

The company said it will have to close starting Aug. 24 at 10:00 a.m. the northbound Skyway on-ramp section before Sucat in the vicinity of Amkor Anam.

“With the closure, northbound class 1 vehicles (ordinary cars) may continue to access the steel ramp towards the elevated section of the Skyway. All class 2 vehicles including buses and vans meanwhile should take the At-Grade section,” it added.

A new traffic scheme will be implemented to ease travel conditions during the closure of the northbound on-ramp.

Open 24/7 are Steel Ramp (for class 1 vehicles only), Hillsborough Southbound Ramp, and Alabang – Zapote Southbound Ramp.

The Steel Ramp Southbound will be open from 4:00 p.m. to 9:00 p.m.

The Alabang-Zapote Northbound Ramp will be open from 9:00 p.m. to 4:00 p.m. the following day.

“To ensure responsiveness to actual traffic situations at any given time, Skyway said that the traffic scheme may be changed from time to time depending on traffic volume,” SMC said. — Arjay L. Balinbin

Implications of COVID-19 pandemic on permanent establishments

The global pandemic has been an ordeal for our society and economy. Recently, the government presented a range of measures to contain the impact of COVID-19, including various forms of quarantine such as the enhanced community quarantine (ECQ), modified enhanced community quarantine (MECQ) and general community quarantine (GCQ) as well as travel restrictions.

The continued implementation of these measures raises several international tax issues related to cross border workers or the unintended creation of permanent establishments (PEs). Due to airport closures and the suspension of international flights, many foreign employees assigned to the Philippines have been trapped for an undetermined length of time. The presence of these foreign nationals in our country poses a risk of creating a PE for their employees.

The concept of PE is applicable to a foreign corporation which is organized in a jurisdiction not governed by the law of the Philippines and is not engaged in trade or business within the Philippines, which is classified, for tax purposes, a nonresident foreign corporation (NRFC). It also applies to a person who is non-resident and not engaged in trade or business in the Philippines.

PE as defined in most treaties means a fixed place of business through which a resident of one of the contracting states engages in trade or business. It especially includes a place of management; a branch; an office; a factory; a workshop; and a mine, an oil or gas well, a quarry or any other place of extraction of natural resources. Its existence, however, requires permanency and cannot be merely temporary or transitory, and through which the business of an enterprise is being carried out.

The term PE also includes the furnishing of services, including consultancy services, by an enterprise through employees or other personnel engaged by the enterprise for such purpose, but only if the activities of that nature continue for a period or periods aggregating of more than, generally, 183 days in any 12-month period. This is the most common source of a PE.

When a foreign enterprise carries out business in the Philippines through a PE, the income that is due to that PE is subject to income tax in the Philippines. As such, income taxes due on their income derived from sources within the Philippines shall also be subject to final withholding taxes. Accordingly, the Philippine customer/payor of the income shall be required to withhold final tax on the gross amount of income.

In order to address the unintended creation of a PE due to Philippine lockdowns, the Bureau of Internal Revenue (BIR) recently issued the Revenue Memorandum Circular (RMC) No. 83-2020, “Tax implications of Measures Being Implemented to Prevent the Spread of New Coronavirus Disease 2019 (COVID-19) on Cross-Border Matters.”

According to the RMC, because of the pandemic, many employees of foreign enterprises in the Philippines are working at home in compliance with the government imposition of strict home quarantine measures and not in compliance with the enterprise’s requirements. Working from home will not create a PE, since a PE should have a degree of permanency and be at the disposal of an enterprise for it to be considered a fixed place of business.

In our case, working from home is only temporary in nature and is only because of the government mandate due to the pandemic. Moreover, the government imposed the working set-up and not the foreign enterprise.

For example, based on the RMC, Mr. X, a non-resident alien was sent by his Singaporean employer to the country on Jan. 1, 2020 to work for a domestic company for 90 days. He was supposed to return to Singapore on March 31, but because of the travel restrictions imposed in the Philippines he was prevented from leaving the country. He has been renting an apartment in Makati City.

Under the Philippine-Singaporean tax treaty, the State where the employment is exercised may tax the employee on his employment income if he is present in the host state for more than 183 days. However, given the exceptional conditions, the Philippines will relax the application of the relevant treaty provisions on employment income. Therefore, even if Mr. X stays here for more than 183 days, his tax residence will not change due to temporary dislocation. Singapore shall still exercise its exclusive right to tax the employment income of Mr. X, except when the domestic company appears to be the real employer or when his remuneration is borne by a permanent establishment of the Singaporean employer in the Philippines.

On the other hand, the temporary interruptions on construction activity in the Philippines due to COVID-19 will be included in computing the duration of a site and in determining whether such a construction site constitutes a PE.

Furthermore, in order for a person to be considered a dependent agent of a PE the following conditions needs to be present: a person acts in a Contracting State on behalf of an enterprise; in doing so, that person habitually concludes contracts, or habitually plays the principal role leading to the conclusion of contracts that are routinely concluded without material modification by the enterprise (it must be established that the presence of a foreign enterprise in the Philippines is not merely transitory); and these contracts are either in the name of the enterprise or for the transfer of the ownership of, or for the granting of the right to use, property owned by that enterprise of that the enterprise has the right to use, of for the provision of services by that enterprise.

To better understand, let us look at this example given by the RMC.  Mr. X is an employee of ABC Company, a foreign corporation incorporated and based in Japan. He was in the Philippines for a two-week vacation when the Philippine government imposed travel restriction and was prevented from leaving the country. His duties and obligations involve concluding contracts on behalf of his foreign employer. While in the Philippines during the travel restrictions, he would habitually conclude contracts on behalf of his employer. Would this result in the creation of PE in the Philippines?

The answer is no, according to the RMC, because Mr. X would not have been present in the Philippines save for COVID-related travel restrictions. His stay in the Philippines is only a result of the COVID-19 pandemic, therefore, his habitual conclusion of contracts in the Philippines on behalf of ABC Company is not considered to constitute a PE of the foreign company in the Philippines because his stay here is only temporary. Had it not been for the travel restrictions, Mr. X would have been regularly performing his duties in Japan.

Hence, when an employee, partner or agent of a non-resident foreign corporation continues to be present in the Philippines because of the travel restrictions related to COVID-19, his stay will not be considered in counting the taxable presence of the non-resident foreign corporation in the Philippines.

However, the effect will, be different if the employee, partner or agent was habitually concluding contracts on behalf of the enterprise in the Philippines before the COVID-19 crisis.

Briefly, the effects of COVID-19 will not result in the creation of PE if the following requisites are present: the non-resident foreign company did not have a PE in the Philippines before the effects of COVID-19; there are no other changes in the company’s circumstances save for the extended stay of its employee, partner or agent in the Philippines because of travel restrictions; and the employee, partner or agent should leave the country as soon as the circumstances would permit.

The RMC was issued on the assumption that the COVID-19 pandemic is exceptional and provisional in nature. If the pandemic continues and the situation today will become the “norm” rather than exception. In that case, this assumption may need to be re-visited and re- evaluated. No one knows when this pandemic will end, but what the Philippine government can do is the continued issuance of relevant regulations that can eliminate or at least lessen the effect of the pandemic in cross border transactions.

Let’s Talk Tax is a weekly newspaper column of P&A Grant Thornton that aims to keep the public informed of various developments in taxation. This article is not intended to be a substitute for competent professional advice.

 

Grace L. Turqueza is an associate from the Tax Advisory & Compliance division of P&A Grant Thornton, the Philippine member firm of Grant Thornton International Ltd.

 

pagrantthornton@ph.gt.com

Fixing PhilHealth

PhilHealth is in a deep mess and it needs all the help it can get.

It is in the midst of a crisis and it calls for crisis management.

More worrisome is the growing consensus that the institution is afflicted with corruption which must be addressed urgently.

For a better perspective, it would serve us well to look back at the evolution of PhilHealth.

HISTORY
PhilHealth’s precursor, the Medicare Program, was established under the Philippine Medical Care Act of 1969 consisting of two programs: Program 1 for Social Security System (SSS) and Government Service Insurance System (GSIS) members, and Program 2 for those not covered by Program 1.

SSS and GSIS members contributed 2.5% of Monthly Salary Credit for Medicare (50% from employees, 50% from employers) that would go to Health Insurance Funds managed by SSS and GSIS to cover member Medicare claims. A Philippine Medical Care Commission had oversight of the program.

I was the CEO of SSS from 1990 to 1998 and fraudulent Medicare claims were practically non-existent then or even before, thanks to the SSS’ tight controls, careful processing and strict audit. The Health Insurance Fund of the SSS grew to over P16 billion, a testimony to the actuarial viability of the program, although the contribution was low, and benefits modest.

In 1998, the Health Insurance Funds and membership contribution collection were transferred from SSS and GSIS to PhilHealth, in accordance with Republic Act 7875.

Besides managing SSS for eight years, I also had the opportunity to turn around a distressed financial institution and a failing manufacturing firm. Drawing from my experience as a former management and social security practitioner, I wish to take the opportunity to offer my unsolicited advice on PhilHealth.

DIAGNOSIS
The Senate, which did a thorough investigation of PhilHealth, is apparently dismayed with its state of affairs, and may soon complete its findings and recommendations.

Senator Panfilo “Ping” Lacson commented that corruption in PhilHealth may be systemic and may have been going on for years, if not decades, with losses probably running in the billions of pesos.

A prior full-blown investigation of PhilHealth, principally on fake dialysis treatment claims in the billions of pesos, may have triggered a management change, with President Rodrigo R. Duterte designating Brigadier General Ricardo Morales as PhilHealth President a year ago.

With the recent pandemic, Congress allocated to PhilHealth tens of billions of pesos for COVID-19 patients, which may have escalated into huge fake COVID-19 claims. “Ang malas naman natin.” (We are so unlucky.)

The investigation exposed some favored hospitals and clinics which received significant reimbursements from PhilHealth immediately and regularly, while others starved for working capital because of delayed reimbursements. “Kawawa naman sila.” (How pitiful they are.)

It also exposed thousands of ghost patients, 135-year-old patients, young persons posing as seniors for medical benefits, extended treatment, and other tricks of the trade.

Worse, PhilHealth reportedly advanced hundreds of millions of pesos intended for COVID-19 patients to dialysis centers which, no doubt, are not equipped to treat COVID-19 patients now, or in the future. So guess what? Per the Senate investigation, a dialysis center reportedly outsourced its COVID-19 patients to a nearby tertiary hospital, probably for a handsome commission with no risks at all. “Ang swerte naman nila!” (They are so lucky!)

To add insult to injury, PhilHealth reportedly issued an internal memorandum giving hospitals and clinics, including these dialysis centers, more time to liquidate their COVID-19 advances. Then, “voila,” another memorandum reportedly followed informing them there is no need to liquidate said advances anymore. “Libre na ba?” (Is it free now?)

Then, there is this allegation of an “overpriced” IT system worth over P2 billion. In their report, Commission on Audit (CoA) auditors discovered that the budget for five ICT (Information and Communications Technology) resources were overpriced by P98 million. It also noted that an Adobe software, costing P168,000 per unit, was listed at P21 million each. Moreover, the price of application servers and licenses was increased from P25 Million to P40 Million.

During the hearing, President Morales revealed the existence in PhilHealth of a “mafia” involved in corrupt practices. In a radio interview, he said, “Kahit si Superman ay hindi kayang talunin ang korupsiyon sa Philhealth (Even Superman is not capable of beating the corruption in PhilHealth).” Senate President Vicente “Tito” Sotto III rejected this in a Tweet, “Tanggalin mo lahat ng corrupt, hindi kailangan si Superman! (Take out all the corrupt, you do not need Superman.”

There were also questions whether the financial statements reflect the true financial state of PhilHealth, with overtones that significant figures are changed from time to time making one wonder whether the books are being “window-dressed.”

It was also reported that the way things are going, Philhealth will run out of funds by next year.

MY TAKE
First, there appears to be failure in governance and management in PhilHealth. Hence, a board and management revamp is called for. If I were in PhilHealth, I would probably resign before the axe falls, as some officers did.

All those involved in the end-to-end reimbursement process must go. Also, those who keep the books must be replaced.

An independent management and full blown audit must be done by a reputable private audit firm, not by CoA which may have exposed some shenanigans but failed to stop the continuing operation of the “mafia.”

Second, PhilHealth does not have a regulatory or supervisory oversight, unlike banks which are supervised by Bangko Sentral ng Pilipinas (BSP).

Philhealth should have regulatory or supervisory oversight as an additional line of defense against fraud. An alternative is to return the oversight of PhilHealth to SSS under the able leadership of Chairman Carlos Dominguez III and President Aurora Ignacio.

SSS has a solid reputation for prudential management, effective controls, a robust IT infrastructure, and excellent ID system with biometrics. PhilHealth can ride on the SSS IT and ID infrastructure to reduce fraud and stop corruption.

Another option is to put it under the Office of the Insurance Commissioner, PhilHealth being a Health Insurance Program.

Third, the report that PhilHealth will run out of funds next year indicates a flawed business model. Clearly, PhilHealth badly needs an actuarial study to determine its long term viability. Otherwise, the government will just have to continue subsidizing the Medicare program.

Fourth, the case of “overpriced IT system” appears to have been properly documented at the Senate investigation.

When asked why he did not raise the red flag right away when he was advised about the overprice, President Morales claimed he is not an IT expert. Well, in any proper bidding, whether on IT systems or others, resources are classified and priced according to specifications, so one does not have to be an expert to see any overprice.

Fifth, the existence of a “mafia” inside the organization means that the structures, policies and procedures, systems, and controls allow and encourage corruption. Obviously, these structures, policies and procedures, systems, and controls must be demolished and replaced.

For example, erring hospitals and clinics should not only be suspended; they should be closed.

A PhilHealth member should have a reliable EMV ID card or mobile virtual ID with biometrics and a digital wallet. The biometrics will eliminate ghost patients and identify erring ones, while the digital wallet will enable the member to directly pay the hospital for services without going through bureaucratic layers, while providing an audit trail.

For example, a member taps in with his EMV (Europay, Mastercard, Visa) ID card or mobile virtual ID card on a hospital Point-Of-Service (POS) or mobile device to check in; a camera can record the procedure; the PhilHealth allowance can be loaded in the member’s digital wallet; and the member can pay for treatment directly by tapping out with his EMV ID card or mobile virtual ID on the same hospital mobile or POS device.

CONCLUSION
Diagnosis and possible prescriptions for treatment have been given. Of course, the patient may opt for a second opinion.

Now, it is the government’s move.

This article reflects the personal opinion of the author and does not reflect the official stand of the Management Association of the Philippines or the MAP.

 

Renato “Rene” C. Valencia is the Chair of the OmniPay, Inc., a graduate of the Philippine Military Academy, and was formerly the President and CEO of the Social Security System (SSS).

map@map.org.ph

rcv3313@gmail.com

http://map.org.ph

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