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PCC freezes merger notification timeline for duration of quarantine

THE Philippine Competition Commission (PCC) is suspending the acceptance and evaluation of merger notifications with its offices minimally staffed while Metro Manila is under enhanced community quarantine.

The PCC, in a resolution Monday, said it will suspend acceptance of new notification forms and letters of non-coverage, as well as the evaluation of the sufficiency of the notification forms and letters of non-coverage that have already been submitted to the commission.

The 30-day deadline to submit merger notifications will also be frozen, with notifying parties given the remaining balance of the notification period when regular operations resume.

Companies have 30 days to submit merger notifications to the PCC after signing definitive agreements. They face fines of up to P2 million if they fail to do so.

PCC merger processes were declared suspended between March 16 to April 14, 2020, or until the community quarantine is lifted.

“Regular operations of the PCC will resume as soon as the NCR-wide quarantine has been lifted,” the PCC said in the statement.

The commission will continue to attend to pre-notification consultations and other inquiries through e-mail or conference calls.

President Rodrigo R. Duterte on Thursday ordered a community quarantine halting land, domestic, and sea travel to and from Metro Manila from March 15 to April 14. Workers may enter and exit Metro Manila by showing their company ID at checkpoints. The quarantine has since been “enhanced” with transport suspended and most people ordered to stay indoors.

The PCC said that numerous entities had expressed concerns about the timely submission of their notification forms for merger transactions whose 30-day notification period will expire during the community quarantine period.

The commission said that it adopted alternative work arrangements and maintains only minimal staffing at its offices.

“The health and safety of PCC employees, transacting parties, resource persons and other stakeholders are of the utmost concern to the Commission during this period of public health emergency,” PCC said.

Meanwhile, the National Privacy Commission (NPC) in an advisory Thursday said previously scheduled discovery conferences, summary hearings, and mediation proceedings are canceled.

“It is emphasized that only the hearings are suspended and that all cases pending before the NPC are neither terminated dismissed,” NPC said.

“Notice for the resetting of both proceedings shall be sent to the parties through mail and/or e-mail.”

The NPC is also encouraging the public to send inquiries, breach notifications, complaints, and other forms of correspondence by phone, e-mail, or to the NPC’s social media accounts.

The Civil Service Commission (CSC) on Monday announced that heads of agencies have the discretion to develop alternative work arrangements for the duration of the community quarantine.

CSC said the alternative work arrangements will ensure delivery of public services while observing social distancing and other preventive measures. — Jenina P. Ibañez

DA confirms bird flu outbreak in Nueva Ecija

THE Department of Agriculture (DA) said confirmed an outbreak of H5N6 Avian Influenza (Bird Flu) at a quail farm in Nueva Ecija.

In a news conference Monday, Agriculture Secretary William D. Dar said the outbreak was confirmed on March 13 after the Nueva Ecija Veterinary Office received reports of increased quail mortality at a farm in Barangay Ulanin-Pitak in Jaen on March 9.

The authorities culled 12,000 birds while 3,000 died from the disease. The farm is now being disinfected.

“We will ensure that the incidence will be contained effectively and swiftly to prevent the occurrence of the unfortunate outbreak of a few years ago,” Mr. Dar said.

The DA implements a “test and cull” strategy in which a sample of birds is tested for the virus, followed by a cull if the test is positive.

Compensation for farmers is set at P10 for small poultry and P80 pesos for bigger birds such as ducks and broiler chickens. The payments will be funded from the DA’s quick response fund.

The DA has placed under surveillance areas which are one kilometer (km) and seven km radius from the affected farm to contain the outbreak.

All poultry inside the one kilometer radius area are subject to testing, with security checkpoints established to prevent animal movement beyond the one-kilometer radius.

“Animal quarantine checkpoints have also been established to restrict the movement of all domestic birds to and from the one kilometer radius quarantine area,” Mr. Dar said.

Meanwhile, poultry products within the seven kilometer surveillance radius are subject to random testing.

Transport of poultry products such as day-old chicks, hatching eggs, and chicken meat within the seven kilometer zone will still be allowed as long as the farms that provided the poultry test negative for bird flu.

Undersecretary Ariel T. Cayanan said that the DA has tested nearby farms and is controlling the spread. He added that proper disposal of the culled birds are equally important.

“The main concern here is to control and contain the virus,” Mr. Cayanan added.

Layer chickens are thought to be more susceptible to the disease than broiler chickens.

The same virus subtype was also the cause of the 2017 bird flu outbreak in Pampanga and Nueva Ecija.

DA Technical Spokesperson for Avian Influenza Arlene V. Vytiaco said there is a possibility of human transmission, which she described as “very slim,” adding that the mortality rate is zero for the persons who tested positive for the virus.

Dr. Vytiaco added the outbreak was controlled due to early reporting by the farm owner.

“Maaga natin na-detect so maaga ang control measures natin. Controlling measures are in place kaya wala dapat ikatakot ang public. (We detected the disease early, so the control measures were implemented as soon as possible). Controlling measures are in place which means that the public has nothing to be scared of,” she said. — Revin Mikhael D. Ochave

Meralco launches measures to sustain power supply

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THE Manila Electric Co. (Meralco) said Monday that it is implementing emergency measures to safeguard the power supply during the Metro Manila lockdown, particularly to critical users like hospitals.

“Meralco is implementing its business continuity plan and emergency measures to distribute power around the clock, especially to crucial installations such as hospitals,” Meralco Senior Vice-President and Head of Networks Ronnie L. Aperocho said in a statement.

The statement was issued in response to the “community quarantine” imposed on Metro Manila, which has since been enhanced to an order for most residents to remain indoors to contain COVID-19.

“Our customers can rest assured that safety is also of paramount concern to us and we will continue to cooperate with government in ensuring that we will provide the best level of service expected from us,” Mr. Aperocho added.

The Department of Energy (DoE) has ordered the utility to postpone scheduled maintenance during the lockdown period, except for activities in “critically loaded areas,” which it will jointly announce with the DoE. — Adam J. Ang

Legislator backs waiver of penalties for late tax filing after April deadline

A KEY legislator has asked the authorities to waive penalties for taxpayers who miss the April 15 deadline for filing tax returns as a form of “administrative relief” for the public during the COVID-19 quarantine.

Representative Jose Maria Clemente S. Salceda of Albay, who chairs the House committee on ways and means, urged the Bureau of Internal Revenue (BIR) to provide taxpayers administrative relief, including a waiver of penalties for missing the deadline.

“It makes sense to extend. While the April 15 deadline is written in the law, the Commissioner of Internal Revenue can make exceptions in meritorious cases. That’s in the tax code. I understand the Secretary of Finance’s sense that they are constrained. But we have options,” Mr. Salceda said in a statement Monday.

He said that the BIR can extend the deadline or “temporarily waive the consequences of the deadline” which includes penalties and surcharges.

Mr. Salceda also said that the electronic filing and payment system of the BIR will also help minimize face-to-face interactions.

“The Large Taxpayer Service already requires electronic filing. That’s around 30 to 40 thousand companies. That accounts for around 68% of the revenue the BIR generates. We should ensure that the user experience is easy, so that individual and small taxpayers can navigate the system,” he said, adding that his panel is now “compelled” to fast-track the legislative process of the BIR’s digital transformation.

“Definitely, it will help to extend the deadline and boost the electronic channels. I am already working with the DoF (Department of Finance) and the BIR to see what (our) options are. We have options to either extend in fact or extend in consequence. Either way works,” Mr. Salceda said.

On Sunday, Finance Secretary Carlos G. Dominguez III said that the department cannot move the April 15 deadline because of the law.

However, Mr. Dominguez said the authorities could waive interest fees on income tax return amendments if the increment of income tax payable does not exceed 25%.

Taxpayers who fail to file by the deadline will incur penalties, including a 25% surcharge on the tax due, and 12% interest per annum. — Genshen L. Espedido

Taxpayers’ right to due process: Can a new assessment be raised at the FDDA?

As the world is now facing a coronavirus (COVID-19) pandemic, each of us is reminded by the World Health Organization of the correct procedures for preventing infection, such as frequently washing hands with soap, maintaining social distancing, practicing respiratory hygiene, and seeking medical care early.

This article, on the other hand, would like to remind taxpayers to protect their rights to due process during the tax audit of the Bureau of Internal Revenue (BIR), specifically when issued a Final Decision on Disputed Assessment (FDDA).

As part of its tax audit procedures, the BIR issues a Formal Letter of Demand and Final Assessment Notice (FLD/FAN), calling for the payment of the taxpayer’s deficiency taxes that have not been resolved at the Preliminary Assessment Notice (PAN) stage. Once the taxpayer files an administrative protest against the FLD/FAN, the BIR will then assess and evaluate the protest in order to come up with its decision.

The FDDA is the final decision of the Commissioner of Internal Revenue (CIR) or a duly authorized representative on the protest to the FAN. Pursuant to the law and regulations, the FDDA should state the facts, the applicable law, the rules and regulations, or the jurisprudence on which such decision is based. Otherwise, the decision shall be void for depriving the taxpayer of their right to due process. Without the facts and the law or regulations on which such a decision is based, the taxpayer cannot intelligently dispute the assessment.

Another instance that deprives taxpayers of their right to due process based on the decision of the Court is the inclusion of a new finding in the FDDA, which was not previously part of the taxes assessed in the PAN and FLD/FAN.

LEGAL CONSEQUENCE OF THE FDDA
In a 2020 Court of Tax Appeals decision (CTA EB No. 1831, Feb. 12, 2020), the CTA held that the tax deficiency assessed for the first time in the FDDA violated the taxpayer’s right to due process, as the latter was not given the chance to refute the finding within the administrative level. Hence, the assessment should be cancelled. The CTA cited Section 228 of the 1997 Tax Code, as amended, which provides that the taxpayer needs to be informed of the law and of the facts on which the assessment is made; otherwise, the assessment will be void.

The taxpayer’s right to due process requires that the taxpayer be given the opportunity to challenge the finding of the BIR. If such an opportunity is not provided, then the right to due process has been violated.

This was also how the CTA ruled in a similar case decided in 2012 (CTA Case No. 7793).

In the 2012 case, the new assessment raised in the FDDA involves final withholding tax (FWT) on software maintenance service fees paid to a nonresident foreign corporation. In the FAN, the BIR assessed expanded withholding tax (EWT) on these fees. The taxpayer, however, argued in a protest to the FAN, that the assessment lacks legal basis, considering that the fees were paid to a United States resident not engaged in trade or business with no permanent establishment (PE) in the Philippines. Thus, the fees cannot be subjected to EWT. In response to the taxpayer’s protest, the BIR issued an FDDA. In lieu of the assessment for EWT, the BIR assessed FWT at 32% of the software maintenance fees.

In the 2020 case, the new finding involves income tax on realized foreign exchange gain, which was never raised in the PAN or FAN.

In other assessment cases, the finding can change from failure to withhold tax on compensation in the FAN to deficiency fringe benefits tax in the FDDA. The basis of the assessment is changed after the taxpayer raises in the protest that the amounts are additional benefits paid to the employees, and not salaries that are not subject to tax on compensation.

The Court decisions, nevertheless, are consistent that only the portion of the new finding is cancelled, and not the other taxes assessed in the FDDA. In short, the inclusion of a new finding does not invalidate the whole FDDA; the other findings can still be valid.

REMEDIES OF THE TAXPAYER
While the inclusion of a new finding in the FDDA has been ruled by the Court as invalid, the taxpayer still has to protest or appeal the case in a proper venue that can rule that the assessment was invalid.

If faced with such a scenario, the taxpayer can either (1) file an appeal with the CTA within 30 days from the date of receipt of the FDDA; (2) elevate their protest through a request for reconsideration to the CIR within 30 days from receipt of the said FDDA; or (3) apply for a compromise in accordance with Section 204 of the 1997 Tax Code, as amended.

In filing an appeal with the CTA and a request for reconsideration with the CIR, the taxpayer may cite the violation of due process in accordance with Section 228 of the 1997 Tax Code, as amended, as its main contention for refuting the said finding. For filing a compromise application, the taxpayer may cite as grounds the “doubtful validity” of the assessment due to the violation of due process.

This should serve as a reminder to taxpayers that they have the right to due process during the entire tax audit procedure of the BIR, up to the issuance of the FDDA. The taxpayer should raise any new finding that is included only in the FDDA in order to protect their right to due process.

However, when taxes are due, these should rightfully be paid to the government.

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.

 

Ed Warren L. Balauag is a manager of Tax Advisory & Compliance division of P&A Grant Thornton, the Philippine member firm of Grant Thornton International Ltd.

pagrantthornton@ph.gt.com

Case studies of lockdowns caused by COVID-19

Wuhan’s bold approach of restricting travel in and out of the industrial city seems to serve as a model for other cities and even whole countries to copy in combating COVID-19, although the lockdown of Wuhan only slowed down the spread of the virus by three to five days because about 5 million residents fled when they sensed the city government would ban exit from it.

Wuhan mayor Zhou Xianwang said nearly half of the city’s 11 million population had escaped before the lockdown was imposed. His estimate was based on a 2018 survey which indicated that 48% of Wuhan residents had gone somewhere else to celebrate the Chinese New Year.

As at least 15,000 people had been infected by COVID-19 and more than 1,000 people had died from it, Italy locked down the entire country on March 10, with Italian Prime Minister Giuseppe Conte telling his people, “Stay home.” The decree had disastrous effect, as Italians jumped in cars and on trains to flee the travel lockdown, with authorities not knowing whether they should stop anyone from leaving.

The lockdown restricted the normal activities of its 60 million citizens outside their homes as the government ordered the closure of retail stores (except pharmacies and grocery outlets), service centers, places of worship, sports and leisure facilities, educational and cultural institutions. Anyone defying a ban on “unnecessary movement” could be subject to criminal charges. While public transportation and airports are allowed to operate, those who want to travel for valid work or family related reasons must obtain police permission.

Denmark was the second European country to impose a nationwide lockdown in an effort to mitigate the spread of the coronavirus disease. The lockdown began on March 14 and is to last until April 13. “We are in uncharted territory. We are in the middle of something none of us have faced before,” Danish Prime Minister Matte Frederickson said during a press conference. “Right now, I know that the overall list of measures is very extreme and will be seen as very extreme, but I am convinced that it is worth it.”

Ireland announced on March 12 that it would impose a country-wide lockdown to contain the spread of the disease. All educational and cultural institutions will be closed. Indoor gatherings were to be limited to no more than 100 people, and outdoor no more than 500. Prime Minister Leo Varadkar said, “We have not witnessed a pandemic of this nature in living memory.”

While El Salvador, which has a population of about 6.4 million, has no confirmed cases of COVID-19 infection, its President Nayib Bukele announced an orange alert on March 11. Schools will be closed for three weeks and gatherings of more than 500 will be banned. Salvadorian citizens returning from abroad will be quarantined for 30 days. Foreigners will be banned from entering the country.

“I know this will be criticized, but let’s put ourselves in Italy’s shoes. Italy wishes they could’ve done this before,” President Bukele said in a national address on Wednesday, according to the Post.”

Poland has also made known it would impose a countrywide lockdown. Polish Prime Minister Mateusz Morawiecki announced Friday that the country would undergo a nationwide lockdown, which would mean banning foreigners from entering the country as well as shutting all restaurants, bars and casinos. “The state will not abandon (its citizens). However, in the current situation we cannot allow ourselves to keep borders open to foreigners,” Mr. Morawiecki said.

New Zealand Prime Minister Jacinda Ardern has also announced a mandatory 14-day quarantine for all individuals entering the country in an attempt to prevent the spread of the virus in the country. Everyone entering the country will be required to quarantine themselves for 14 days, she said, and no cruise ship will be allowed to dock in the country until June 30.

What is common among the various lockdowns are the banning of entry of foreigners, requiring 14-day quarantines for citizens returning from abroad, the shut down of schools and leisure facilities, and restriction of large gatherings and unnecessary movement of people.

In contrast is South Korea’s approach. From the outset, the Korean government set key principles to combat COVID-19: Be quick, transparent, and pre-emptive.

Instead of testing only patients showing symptoms as is done in other countries, South Korean health authorities tested everyone who had been in close contact with confirmed cases. They pursued and tracked down possible patients to prevent spread within the community. In the process, the health workers discovered a rapid community transmission taking place among members of the Shincheonji Church.

The catchall approach identified Korea as one of the most affected countries. As of March 11, Korea has 7,755 confirmed cases of COVID-19, the result of having tested 214,640 people, which accounts for the low mortality rate of 0.77%, which is way below the 3.4% global average.

President Rodrigo Duterte announced late Thursday night the imposition of “community quarantine” for the entire Metro Manila effective at 12:01 a.m. of March 15 to prevent the spread of COVID-19. The quarantine meant the suspension of land, domestic air, and domestic sea travel to and from Metro Manila from March 15 to April 14.

Government work would be suspended and a skeletal workforce would be in place. Foreign nationals from countries with localized COVID-19 transmissions would be banned from entering the country.

“We do not want to say it is a lockdown because that frightens people but it is a lockdown. There is no struggle of power here, it is a matter of protecting and defending you from COVID-19,” the president, said.

The following morning, thousands of temporary residents of Metro Manila trooped to bus terminals, sea ports, and airports to avoid being confined to the metropolis and prevented from seeing their families for 30 days. On Friday and Saturday, TV stations showed scenes of jampacked bus terminals and sea ports.

One cannot but assume that many among the tens of thousands in those overcrowded places are carriers of COVID-19. As people were jammed shoulder-to-shoulder while waiting to get on board a bus or ship, the carriers could have infected many others. As the buses and ships were to bring them to the different provinces north and south of Metro Manila, the announcement of the quarantine of Metro Manila might have only triggered the spread of the coronavirus all over the country.

I shudder to think of how the inadequately staffed and ill-equipped health care facilities in the provinces would cope when the infected seek medical attention.

 

Oscar P. Lagman, Jr. is a retired corporate executive, business consultant, and management professor. He has been a politicized citizen since his college days in the late 1950s.

Forecasting in a time of radical uncertainty

On Thursday night, President Rodrigo Duterte, upon the recommendation of health officials, announced that for 30 days starting March 15, Metro Manila will be put under “community quarantine,” a term that he said means a lockdown. The measure was in response to the rapidly rising number of COVID-19 infections in the last 10 days, increasing from only three (with one dead) to 140 (with 12 deceased) per the latest count (as of March 15).

The quarantine of Metro Manila is accompanied by guidelines that may lead to a widening of quarantines to other local government units and/or their smaller political subdivisions depending on the spread of COVID-19 cases. Other “stringent social distancing measures” have also been imposed including the suspension of classes and mass gatherings and most work in the executive branch of government. Nevertheless, it will not be a total lockdown as certain retail outlets will remain open and public transportation systems will continue to operate. Also reported excluded are deliveries in and out of Metro Manila, and workers who live outside Metro Manila will be allowed entry/exit.

The measures at first glance are quite drastic considering the relatively low number of COVID-19 infections but on further thought appear necessary given the high likelihood that many more cases remain undetected and the fact that the health department has only a limited supply of test kits. Panic buying in supermarkets also became the norm before the lockdown.

Clearly, our last brief downgrading our 2020 economic growth forecast had not anticipated a lockdown situation and of Metro Manila no less, which accounts for close to 40% of Philippine GDP. Moreover, with the global transmission of the virus worsening, now recognized as a pandemic by the World Health Organization, the impact of the coronavirus on domestic activity will surely be higher than the 0.5ppt cut to GDP growth we considered early this month.

At this time though, we have more questions than answers on how exactly government will carry out the quarantine and are awaiting more detailed guidelines, currently being drafted. Given plunging stock prices, which government is trying to prop up by ordering state pension institutions to double their daily stock purchases, we think that aside from the direct impact on worker and business incomes from the lockdown, the thing to watch out for is how the developments will affect consumer and business sentiments.

We will be looking more closely at the numbers and what the likely impact on growth will be. While we agree with former Governor of the Bank of England Mervyn King that in this time of “radical uncertainty,” it would be quite impossible to attach probabilities to the range of possible outcomes, we will still try to hazard a guestimate, although our main objective would be to get a more solid grasp of the risks and channels of transmission and their importance to the domestic economy. For now, we note the following likely changes to our forecast numbers.

1. The impact on consumption will be much higher. First, the spread of the virus and the lockdown will mean that relying on local tourism to make up for the foreign travel bans is no longer viable, which means that tourism-related sectors (transport, retail, hospitality) will be hit harder. Reduced demand will have knock-on effects on firm profitability, especially for small businesses, that can be expected to lead to job losses or pay cuts for workers. Add to this are fears of infection as well as self and community quarantines that will keep more people home. Another consideration is that although wage and salaried workers may be able to rely on some safety nets (e.g., paid leaves or publicly provided but limited unemployment benefits), the self-employed, who make up close to 30% of employment, will be at greater risk, and fear of income losses may worsen infection rates if those with minor symptoms (or the asymptomatic) opt to continue working.

2. Private investments are unlikely to recover under this environment as businesses try to cope with the many new challenges. Some firms, in order to minimize the risk of infection and manage restrictions during the lockdown, have opted to temporarily downsize operations.

3. With the global growth outlook turning bleaker, the export sector is facing even more headwinds quite apart from supply chain disruptions. Remittances may also be affected more than expected by a synchronized global slowdown, especially if employers themselves are crippled by the expected downturn in international tourism.

4. Although economic managers have acknowledged that the budget deficit will be higher this year (3.6% of GDP estimate) and additional funding for the COVID-19 outbreak is expected to come through off-budget support, we also worry that the spread of the virus will affect the pace of government’s Build, Build, Build infrastructure program.

 

Romeo L. Bernardo was finance undersecretary during the Cory Aquino and Fidel Ramos administrations.

romeo.lopez.bernardo@gmail.com

Evolving viruses and innovator drugs

The bad news is that the Wuhan virus — a.k.a. severe acute respiratory syndrome coronavirus 2 or SARS-CoV-2 which causes coronavirus disease 2019 or Covid-19 — continues to expand worldwide. The good news is that humanity is a survivor of many deadly viruses in the past and modern and innovator medicines and vaccines keep coming.

It is also not “racist” to call it the Wuhan virus because for most viruses, they are named for the places where they first appeared or were discovered. Below shows some major viruses that humanity has overcome and their estimated case fatality rate or CFR (see Table 1).

Other known deadly viruses are rabies, dengue, and HIV, with the latter having estimated to have killed 32 million people, mostly in Africa.

The US Centers for Disease Control and Prevention (CDC) estimated that global fatality from ordinary flu is up to 646,000 deaths per year, excluding pandemics. If we keep this in mind, fatalities of 5,000+ from the Wuhan virus worldwide does not appear to be so alarming. Its CFR of up to 6% also pales in comparison to the CFR of viruses like SARS and Ebola.

But hysteria has prevailed worldwide. The Philippines has policies like the Metro Manila quarantine, sometimes called “lockdown,” from other provinces, a curfew from 8 p.m. to 5 a.m., sending fully armed police and soldiers to man checkpoints. These policies have expanded the hysteria instead of reducing or calming it.

For now there is no existing vaccine or medicine against the Wuhan virus. Humanity has survived past evolving viruses via evolving medicines and vaccines. Viruses are living microorganisms that mutate and evolve through time as there are many potential carriers like pigs, chickens, bats, and other wild animals. It is important that humanity should recognize the importance of evolving medicines that need to be invented.

So President Rodrigo Duterte’s recent Executive Order (EO) 104, issued last February, imposing drug price control via maximum wholesale price (MWP) and maximum retail price (MRP) that targeted mostly innovator, newly invented, and still patented drugs is unwise and irresponsible.

The Cheaper and Quality Medicines Act of 2008 or RA 9502 and its implementing rules and regulations (IRR) specified only MRP, no mention or reference to MWP, and yet the EO targeted MWP or penalizing the manufacturers of innovator medicines. The average retailers’ assured margin is about 40% for the 122 molecules covering 205 medical preparations.

I asked a friend who works for a drugstore chain in Manila to give me the existing market prices of certain medicines and I compared those with the MWP and MRP which are contained in EO 104. The result is ugly: for some medicines that I chose, the retailers’ margin is high, up to 62%, but projected patients’ benefits are either low/zero, or even negative, meaning the proposed MRP is even higher than existing retail prices (see Table 2).

Going back to the Wuhan virus or COVID-19 — we need effective and safe medicines against this dreaded disease to reduce the hysteria and save lives, and these medicines are done only by innovator pharma and biotech companies and laboratories, not generic companies.

EO 104 has sent wrong signal to innovator firms, so if some of them finally invent a good treatment vs COVID-19, they may hesitate to bring it in the Philippines. This situation can be remedied if the Department of Health and Office of the President silently pull out that EO, and tell innovator firms that they will not be penalized here. They can help save lives and calm the hysteria in the Philippines.

 

Bienvenido S. Oplas, Jr. is the president of Minimal Government Thinkers.

minimalgovernment@gmail.com

Commentaries on the One Person Corporation under the Revised Corporation Code

(Last of five parts)

The conversion of an Ordinary Stock Corporation to a One Person Corporation (OPC) is explained in Section 131.

Under Section 131, when all the shares of record of an ordinary stock corporation are acquired by a single stockholder (who must be a natural person):

1.) He/she “may apply for conversion into” an OPC, and subject to the submission of such documents as the SEC (Securities and Exchange Commission) may require; and

2.) If the application for conversion is approved, the SEC shall issue a Certificate of Filing of Amended Articles of Incorporation reflecting the conversion.

3.) Rule on Succession of Liabilities: The OPC converted from an ordinary stock corporation shall succeed the latter and be legally responsible for all the latter’s outstanding liabilities as of the date of conversion.

Under the draft SEC Guidelines on the Conversion of an Ordinary Stock Corporation into a One Person Corporation, it is provided that:

(i) Only domestic corporations organized as a stock corporation may be converted into an OPC;

(ii) After a natural person of legal age, a trust, or an estate has acquired all of the outstanding capital stocks of an ordinary stock corporation may the latter apply for its conversion into an OPC;

(iii) Applications for conversion to an OPC will be processed as an amendment of the AOI/Bylaws to comply with the requirements as to corporate name, one director, indication of the Nominee and Alternate Nominee, and removal of such other provisions that are distinctive to ordinary stock corporations, etc.;

(iv) Conversion to OPC shall take effect upon SEC’s approval of the amended AOI through the issuance of a Certificate of Filing of Amended Articles of Incorporation, with the OPC retaining the SEC Company Registration Number with the addition of “OPC” at the end thereof; and

(v) The OPC shall succeed to all the outstanding liabilities and obligations of the converted ordinary stock corporation as of the date of approval of the conversion.

It is clear from the permissive language of Section 131 (“may apply for conversion”) that it is within the rights of the single stockholder of an ordinary stock corporation not to apply with the SEC for the conversion of the corporation into an OPC.

Since the Revised Corporation Code (RCC) seems to tolerate the existence of an ordinary stock corporation with a single natural-person-stockholder, this would show that the rule under the last paragraph of Section 10 (Number and Qualifications of Incorporators) that “A corporation with a single stockholder is considered a One Person Corporation as described in Title XIII, Chapter III of this Code,” is clearly a “rule of incorporation” and not a default rule that would set all corporations with a single natural-person-stockholder to all being governed by Chapter III of Title XIII of the RCC. In other words, if at the point of incorporation of a stock corporation it is provided that it shall only have one natural-person-stockholder, there is no choice but to incorporate it as an OPC.

In a situation where all of the shares of stock of an ordinary stock corporation are acquired by a single natural-person-stockholder, would the SEC allow a formal amendment of the AOI, not to convert into an OPC, but rather to reduce the number of Board members to just one? Under such a scenario, the single natural-person-stockholder would be the sole Director and the President of the corporation, while the Corporate Secretary and the Treasurer would be officers who need not be members of the Board.

If such a scenario would be allowed, then there would be no impetus for the single natural-person-stockholder to formally convert into an OPC which is saddled with the burden of showing that is adequately financed to be able to apply the doctrine of limited liability.

It is our expectation that the Supreme Court will eventually develop a unifying doctrine on the application of the doctrine of limited liability for both the OPC and an ordinary stock corporation with a single natural-person stockholder.

CONVERSION FROM OPC TO AN ORDINARY STOCK CORPORATION
Under Section 132 of the RCC, an OPC may be converted into an ordinary stock corporation by:

1.) Due notice to be filed with SEC, within 60 days from the occurrence of the circumstances leading to the conversion into an ordinary stock corporation;

2.) Compliance with all other requirements for stock corporations; and,

3.) When all requirements have been complied with, SEC shall issue a certificate of filing of amended articles of incorporation reflecting the conversion.

4.) Succession of Liabilities: The ordinary stock corporation converted from an OPC shall succeed the latter and be legally responsible for all the latter’s liabilities as of the date of conversion.

Since the language of the first paragraph of Section 31 is permissive (an OPC “may be converted into an ordinary stock corporation”), is it within the statutory intent that even when an OPC has become constituted of more than one natural-person-stockholder (e.g. the Single Stockholder sells some of his shares to other individuals), it remains governed by Chapter III of Title XIII of the RCC?

Since indication that a corporation is an “OPC” is a clear requirement under the RCC, it seems that even when an OPC becomes constituted of several stockholders, it remains bound by the provisions of Chapter III of Title XIII for the protection of its creditors. It may be the reason why when an OPC becomes constituted of several stockholders, there is every commercial reason to formally convert into an ordinary stock corporation; otherwise, the registered stockholders run the risk of being unlimited liable for the debts and other liabilities of the corporation.

CONVERSION/DISSOLUTION OF AN OPC IN CASE OF DEATH OF THE SINGLE STOCKHOLDER
Under the second paragraph of Section 132, in case of death of the Single Stockholder:

1.) Within seven days from the receipt of either: (i) An Affidavit of Heirship or Self-Adjudication executed by a sole heir; or (ii) Any other legal document declaring the legal heirs of the Single Stockholder; the Nominee or Alternate Nominee shall transfer the shares to the duly designated legal heir or estate and notify SEC of the transfer;

2.) Within 60 days from the transfer of the shares, the legal heirs shall notify the SEC of their decision to either: (i) Wind-up and dissolve the OPC; or (ii) Convert it into an ordinary stock corporation.

The language of the second paragraph of Section 132 seems mandatory in character. When the Single Stockholder dies, it is mandatory for the Nominee (Alternate Nominee) to transfer the shares of the OPC to the sole heir or the estate (if there are several heirs), and to notify the SEC.

It seems from the language of Section 132, that if there is only one heir, the OPC can remain subsisting with the only sole heir as the new Single Stockholder. But even when there are several heirs, and the shares are transferred to the estate of the decedent, can the OPC not continue to subsists with the “estate” (i.e., the administrator of the estate) as the Single Stockholder?

The 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

 

Cesar L. Villanueva is Chair of the MAP Corporate Governance Committee, the Founding Partner of the Villanueva Gabionza & Dy Law Offices, and the former Chair of the Governance Commission for GOCCs (GCG).

cvillanueva@vgslaw.com

map@map.org.ph

http://map.org.ph

Countdown to Zero challenges big polluters

By Clara Ferreira Marques and David Fickling

OIL MAJORS and big miners have been falling over themselves to promise better behavior when it comes to greenhouse gases. A significant number now say they are targeting zero emissions. Unfortunately, not everyone agrees on exactly what that means. It leaves investors clear on good intentions, but far less so on how to price transition risk, compare strategies and judge success.

The real trouble sits with the widest and most significant category of emissions — those that don’t come directly from operating a well or mine, but are produced indirectly when oil, gas, iron ore, or coal is burned or processed by customers. For outfits like BP Plc and BHP Group, these so-called Scope 3 emissions can add up to as much as 90% of their total footprint. They’re also far harder to control, as they aren’t produced by the reporting companies themselves.

Resources giants, even poorly performing oil majors, have the scale and financial clout to manage a transition to a carbon-light economy — should they choose to. The rapid destruction of value in segments of the coal sector has left few in doubt of how quickly they could be left behind if they ignore such downstream emissions. Last week’s collapse in oil prices is another memento mori for carbon-intensive businesses.

That doesn’t mean everyone has embraced the idea of targeting Scope 3 emissions. Rio Tinto Group, for one, has said it can’t set targets for its clients, though it will engage in as yet unspecified projects with the likes of China Baowu Steel Group Corp. BHP will produce numbers later this year. Others, like BP, have promised to eliminate Scope 3 emissions where they’ve drilled the oil, but won’t commit to doing the same if they’re only doing the refining. Spain’s Repsol SA is among the few to be promising an absolute zero target for all three sets of emissions.

In this flurry of green activity, what should investors be demanding?

The first thing should be transparency. Many of the biggest emitters have yet to make full Scope 3 disclosures, including such pillars of developed-market stock indexes as Exxon Mobil Corp., Anglo American Plc, and Fortescue Metals Group Ltd. At this point, that decision is almost churlish: It isn’t hard for investors to do their own calculations. Those that don’t face up to the reality of decarbonization will increasingly be treated like any other business that’s careless about its medium- and long-term liabilities.

A second point is comparability. Although the overwhelming majority of Scope 3 emissions for resources companies come from the processing and combustion of their products, the standard incorporates a range of other activities such as waste disposal, product distribution, and even business travel and staff commuting.

To add to that complexity, companies can replace the standardized emissions factors used to produce the figures with bespoke ones if their customers operate particularly efficient plants. Without full transparency about where those savings come in, companies could reduce their footprint by leaning on overly generous assumptions, and claim credit that more rigorous competitors would miss out on.

There is also the unsolved question of how to manage double-counting, when, for example, coking coal and iron ore are sold to a producer that will use both in making steel.

Investors should demand the means to measure progress, and success. Laying out ambitions for emissions 30 years hence is all but meaningless unless you’re also describing a path to get there. If investors are to take these numbers seriously, they’ll want to see plans for the steps along the way.

That won’t be easy. For oil majors, it will require nothing less than a reinvention of their entire businesses, moving into industries that have historically produced lower returns than fossil fuels, as former BP Chief Executive Officer Bob Dudley has pointed out.

Mining giants that have depended on revenues from high-volume bulk commodities such as coal and iron ore will have to either push their customers to switch to new technologies such as hydrogen-reduced steel, or depend on less lucrative base metals, specialty commodities, and agricultural inputs.

Providing too much detail about the road ahead risks disclosing a company’s business strategy, too, or tilting the market. How much of the reductions will come, as with Glencore Plc, from allowing mines and wells to deplete naturally as their reserve base is used up? How much will depend on selling assets, such as BP’s near-20% stake in Rosneft? How much will rely on technology that exists, but is not yet used on a wide scale, like carbon capture and storage?

The last point on fund manager wish lists should be consistency. Investors will benchmark talk of long-term ambitions against performance on actual, shorter-term activity.

Gabriel Wilson-Otto, head of stewardship, Asia Pacific, at BNP Paribas Asset Management, suggests that will mean keeping an eye on capital spending: Projects that generate downstream emissions decades into the future should be attracting more scrutiny. Similarly, corporate lobbying will be monitored for evidence it is allowing organizations to flash up green ambitions but still campaign against action on climate.

None of this should be a burden on good governance. The CDP, a nonprofit research group that pushes for greenhouse disclosure, found in 2014 that the return on investment for companies that do so was 67% higher than for those that didn’t.

The winds of decarbonization are blowing through the commodities industry. Companies that don’t bend in the face of these changes will break.

 

BLOOMBERG OPINION

Peso sinks further as coronavirus continues to spread

THE PESO dropped on Monday and settled at the P51-per-dollar level for the second straight day as more investors opted for safer havens amid fears due to the spread of the coronavirus disease 2019 (COVID-19), which has now triggered an “enhanced community quarantine” for the whole of Luzon island.

The local unit finished trading at P51.50 per dollar, plunging by 47 centavos from its P51.03 close on Friday.

The peso opened the session at P51.25 per dollar. Its weakest was its close of P51.50, while its intraday best was at P50.99 against the greenback.

Dollars traded dropped to $769.39 million from the $1.416 billion seen last Friday.

Analysts said the local unit was tracking the general sentiment of the market which was filled with fears amid the prolonged spread of the COVID-19 that has already triggered a lockdown of the country’s capital.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said Monday’s close is the peso’s weakest in five months and was due to risk aversion due to the COVID-19.

“The peso was also weaker as the local stock market sharply declined and after the whole of Luzon has been put under enhanced quarantine,” Mr. Ricafort said in a text message.

President Rodrigo R. Duterte has put Luzon under enhanced community quarantine which will impose strict home quarantine and no transportation except for frontline health workers, government officials, and other relevant personnels addressing the spread.

Confirmed cases of COVID-19 in the country have hit 140, with 12 deaths recorded as of press time.

UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion also blamed the peso’s weakness to worries over the pandemic.

“The peso is also tracking the general sentiment around the world as major and advanced countries face this virus fight,” Mr. Asuncion said in a text message.

The US Federal Reserve again opted for an off-cycle rate cut and has announced at least $700 billion in Treasuries and mortgage-backed securities purchases in coming weeks, Reuters reported on Monday.

“The economic outlook is evolving on a daily basis and it is depending on the spread of the virus … That is not something that is knowable,” Fed Chairman Jerome Powell said at the end of an emergency Fed meeting held in place of the Fed’s regular meeting this week.

For today, Mr. Ricafort gave a forecast range of P51.25 while Mr. Asuncion sees the peso moving around P51.30 to P51.60 — L.W.T. Noble with Reuters

Stocks plunge as investors assess virus impact

By Denise A. Valdez, Reporter

LOCAL SHARES plunged on Monday as investors continue to assess the economic impact of the coronavirus disease 2019 (COVID-19) pandemic.

The 30-member Philippine Stock Exchange index lost 458.57 points or 7.91% to 5,335.37 on Monday. The broader all shares index likewise dropped 221.85 points or 6.35% to 3,271.79.

“Market has been sent into turmoil by COVID-19, same with the rest of the world,” First Metro Investment Corp. Vice-President Cristina S. Ulang said in a text message. “The volatility will subside and a recovery is possible only if and when the infection spread dissipates.”

As Metro Manila started its first working day under community quarantine yesterday, listed firms one-by-one disclosed the impact of limited operations to their businesses. This resulted in almost all PSEi member stocks hitting their 52-week lows.

The PSE also kicked off yesterday its reduced trading hours starting yesterday which will last until April 14. The local market will open at 9 a.m. and close at 1 p.m.

“With the number of cases rising, the country has added measures for more social distancing. This however would imply that growth would be cut as establishments would realize less business as a result,” Regina Capital Development Corp. Head of Sales Luis A. Limlingan said in a mobile message.

“Furthermore, stock futures plunged Sunday night even after the Federal Reserve embarked on a massive monetary stimulus campaign… [M]any investors said they would ultimately want to see coronavirus cases peaking and falling in the US before it was safe to take on risk and buy equities again,” he added.

All sectoral indices at the local bourse closed in red territory yesterday. Holding firms lost 568.49 points or 10.02% to 5,105.16; financials dropped 126.47 points or 8.93% to 1,289.19; property trimmed 232.35 points or 7.78% to 2,753.05; mining and oil shaved off 204.34 points or 4.32% to 4,523.47; industrials fell 176.21 points or 2.49% to 6,894.90; and services slipped 26.14 points or 2.20% to 1,161.47.

Some 618.19 million issues valued at P6.44 billion switched hands on Monday, down from last Friday’s 950.23 million issues worth P10.72 billion.

Declining stocks outnumbered those that gained, 145 against 46, while 40 names ended unchanged.

Foreign outflows were trimmed to a net P741.72 million from last session’s net selling worth P1.64 billion.

During these times, Ms. Ulang said it is best to have a diversified portfolio and not chase market rallies.

“If you’re light in equities, load up on high quality, high-paying dividend stock. Be selective. Secure some accrual income from government and corporate debts,” she said.

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