PHILIPPINES: An Introduction to Corporate & Finance

Chambers Global Guide: Philippines Overview
VILLARAZA & ANGANGCO LAW

Raoul R. Angangco
Sylvette Y. Tankiang
Franchette M. Acosta
Senior Partners

With the vaccine rollout underway, the Philippines expects to bounce back slowly but surely as one of Southeast Asia’s steadily growing economies. But with the continued onslaught of the pandemic-driven economic slump, the government passed several critical pieces of legislation to attempt to cushion the blow on the country.

Compulsory Notification of Mergers and Acquisitions

The Philippine Competition Commission (“PCC”) has the power to review mergers and acquisitions having a direct, substantial, and reasonably foreseeable effect on trade, industry, or commerce in the Philippines. This power may be exercised by the PCC either upon compulsory notification or motu proprio. Republic Act (“RA”) No. 11469 (“Bayanihan 2”) exempts from compulsory notification mergers and acquisitions with transaction values below PhP50 billion if entered into within two years from the effectivity of said law.

For purposes of determining the “transaction value," a proposed merger or acquisition of assets inside and outside the Philippines is notifiable if (a) the aggregate annual gross revenues in, into or from the Philippines, or value of the assets in the Philippines of the ultimate parent entity (“UPE”) of at least one of the acquiring or acquired entities, including that of all entities that the UPE controls, directly or indirectly, is PhP50 billion or more; and (b) the value of the transaction is PhP50 billion or more.

Further, mergers and acquisitions falling below the above thresholds and entered into during the effectivity of Bayanihan 2 are exempt from the PCC’s power to review motu proprio for a period of one year from the effectivity of the said law or on 11 September 2020.

Personal Property as Security 

The Personal Property Security Act (“PPSA”), passed in 2018, is more relevant than ever for individuals and enterprises who were badly hit by the pandemic. The PPSA forms the framework for the establishment of a centralized notice registry and enforcement of security interests in tangible and intangible personal property such as equipment, inventory, intellectual property, furniture, livestock, and future property. The law aims to encourage the public, particularly small business owners, fisherfolk, and farmers, by increasing access to credit through securing of loans from banks using collateral aside from conventional means.

Corporate Recovery and Tax Incentives for Enterprises (CREATE)

Under the CREATE Act, which was enacted into law on 26 March 2021, corporate income tax has been reduced from 30% to 20% for domestic corporations whose total net taxable income falls below PhP5 million and total assets do not exceed PhP100 million (excluding land). For other domestic corporations that do not meet these thresholds, the corporate income tax is lowered from 30% to 25%. The law also introduces measures to attract investors to the countryside, provides for higher incentives for enterprises outside of metropolitan areas, additional incentives for enterprises that fully relocate outside of the National Capital Region and those who will locate in areas recovering from disasters or armed conflict.

Notably, several items in the original CREATE Bill were vetoed by the President and did not make it to the final version of the law, including the proposed increase of the VAT-exempt threshold for sales of real property, the 90-day period for processing of general tax refunds, the definition of investment capital, redundant incentives for domestic enterprises, and the automatic approval of applications for incentives.

Emergency Use Authorization for COVID-19 Vaccines

The Food and Drug Administration (“FDA”) regulates the manufacture, sale, importation, and/or distribution of any health products, including vaccines, in the Philippines. Due to the urgent necessity of COVID-19 vaccines, Executive Order No. 121 dated 1 December 2020 was issued to give the FDA Director General power to issue an Emergency Use Authorization (“EUA”) for qualified COVID-19 vaccines. FDA Circular No. 2020-036 guides on the issuance of EUAs for COVID-19 vaccines.

Once approved, the EUA is valid only within the duration of the declared public health emergency due to COVID-19, or upon issuance of a full market authorization/Certificate of Product Registration (“CPR”). Nevertheless, an EUA is not equivalent to a marketing authorization/CPR and cannot be used as authority to market the vaccine commercially.

Mandatory Grace Period for Payment of Loans

Among the various initiatives doled out by the government, Bayanihan 2 effectively extended the maturity of loans by directing all banks, quasi-banks, financing companies, lending companies, real estate developers, insurance companies providing life insurance policies, pre-need companies, entities providing in-house financing for goods and properties purchased, asset and liabilities management companies and other financial institutions, public and private, to implement a one-time 60-day grace period for the payment of all loans falling due, or any part thereof, on or before 31 December 2020, without incurring interest on interests, penalties, fees, or other charges. The Securities and Exchange Commission (“SEC”) clarified that the grace period applied to each loan, whether the borrower has a single or multiple loans with the entity concerned.

DTI and DOLE Workplace Guidelines 

Under the Department of Labor and Employment (“DOLE”) and Department of Trade and Industry (“DTI”) Interim Guidelines on Workplace Prevention and Control of COVID-19 (“Interim Guidelines”), minimum health standards of the DOH must be implemented in all workplaces during the Community Quarantine periods. The minimum health standards include wearing of face masks, accomplishment of daily health questionnaires, and recording of temperatures prior to entry. The Interim Guidelines also provides that employers must supply the resources and materials to keep workers healthy and the workplace safe, including masks, soap, disinfectant, and COVID-19 testing kits.

Likewise, the DOLE has implemented measures to aid employers curb the spread of COVID-19 and deal with the deleterious effects thereof on businesses, including the grant of COVID-19 financial assistance, deferment of premium/holiday pay, and encouraging the implementation of flexible work arrangements, among others.

SEC Reprieves During COVID 

During the height of the nationwide lockdowns, the SEC granted corporations some leeway by extending deadlines for the submission or filing of reportorial requirements. Filing dates of the general information sheet, audited financial statements, annual and quarterly reports for publicly-listed companies, and posting of additional securities deposit and substitution of securities deposit without the need for a request from the affected branch offices were extended and allowed to be made online.

Digital Banks 

The BSP officially released its guidelines for licensing of digital banks, which took effect on 23 December 2020. Under the guidelines, minimum capitalization of digital banks shall be at least PhP1 billion, with the BSP having authority to impose a higher minimum capital requirement and capital ratio based on its assessment of the risk profile of the digital bank. Although the key feature of digital banks is the conduct of its business using a digital platform and/or electronic channels, consequently rendering physical branches superfluous, the new framework requires digital banks to maintain a principal or head office in the Philippines to serve as the main point of contact to house management and other support operations, including receiving and resolving customer complaints.

Extension of NPC Registration Validity 

With the forthcoming launch of its online registration system (“eRehistro”), the National Privacy Commission has announced the further extension of existing Data Protection Officer (“DPO”) registrations validity until 30 June 2021. Moreover, Data Processing Systems must also be registered under the Data Privacy Act of 2012. The eRehistro System is expected to go live within the year.