PHILIPPINES: An Introduction to Corporate/M&A

Chambers Asia Guide: Philippines Overview  

VILLARAZA & ANGANGCO LAW 

Raoul R. Angangco  

Sylvette Y. Tankiang  

Franchette M. Acosta 

Senior Partners 

The Philippine economy grew at an unexpectedly faster rate in the third quarter of 2021, which may be attributable to the aggressive vaccine distribution program of the administration. But with the threat of economic slowdown due to the rapid spreading of the Omicron variant, the government is finding ways to soften the impact 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 15 September 2020.

To determine 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 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. Mergers and acquisitions falling below the thresholds and entered into during the effectivity of Bayanihan 2 were exempt from the PCC’s power to review motu proprio for a one year period from the effectivity of the law or until 15 September 2021.

Despite not being subject to compulsory notification, parties may submit a transaction for voluntary notification to avoid any risk that said transaction could be reviewed by the PCC post-facto, ensuring completion of the transaction without interruption.

Personal Property as Security 

The Personal Property Security Act (“PPSA”), passed in 2018, forms the framework for the establishment of a centralised 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.

The Department of Finance has issued Administrative Order No. 001, Series of 2021 prescribing the fees for the various services under the PPSA Registry, to be implemented by the designated administrator of the PPSA Registry, the Land Registration Authority.

Retail Trade Liberalization Act Amendment

Republic Act No. 11595, or “An Act Amending Republic Act No. 8762, otherwise known as the ‘Retail Trade Liberalization Act of 2000,’ by Lowering the Required Paid-up Capital for Foreign Retail Enterprises, and For Other Purpose,” was signed into law last 10 December 2021. Under Republic Act No. 11595, the prescribed minimum paid up capital for a 100% foreign-owned retail business has been lowered to PHP25,000,000.00 (approximately USD500,000.00). Moreover, the prescribed minimum investment per store is set at PHP10,000,000.00 (approximately USD200,000.00).

Public Service Act Amendment 

The Senate approved on third and final reading SB 2094 which amends the Public Service Act (“PSA”), originally created in 1934, to allow full foreign ownership of ventures in telecommunications, domestic shipping, air carriers, railways and subways, canals and irrigations. The PSA amendment will help improve the country’s openness to foreign equity limitations.

Tax Treaty Relief Application 

The BIR released its guidelines to streamline the procedures and documents for the availment of tax treaty benefits. The guidelines prescribe two alternative methods of availing tax treaty rates and/or exemptions.

First is the submission of the documents by the foreign entity to the resident withholding agent prior to payment to the recipient/foreign entity. Once the resident withholding agent receives the required documents, it need not withhold tax or it may apply the preferential tax treaty rate on its payments to the recipient/foreign entity. Within four months following the close of each taxable quarter, the resident withholding agent will file a request for confirmation on the propriety of the non-withholding of tax or application of preferential tax treaty rate on its payments to the recipient/foreign entity.

Second, if regular tax rates have been imposed on the payment to the recipient/foreign entity, the recipient/foreign entity has the option of filing a Tax Treaty Relief Application or TTRA, and to thereafter request for refund of the tax withheld from the resident withholding agent’s payment. The TTRA is filed after the receipt of payment to prove the recipient/foreign entity’s entitlement to exemptions and/or tax treaty rates granted under the applicable tax treaty.

Digital Banks 

In 2020, the Bangko Sentral ng Pilipinas (“BSP”) released its guidelines for licensing of digital banks, requiring minimum capitalisation of at least PHP1 billion for digital banks and new framework to maintain a principal or head office in the Philippines as the main point of contact to house management and other support operations, including receiving and resolving customer complaints. In latter part of 2021, the BSP announced that it will close the window for the submission of applications from new digital banks, including converting banks, starting 31 August 2021. Complete digital bank applications received by the BSP on or before the closure date will be processed but applications after said date will no longer be entertained nor accepted.

Ease of Bank Mergers, Consolidations and Acquisitions

On 5 November 2021, the BSP entered into a memorandum of agreement (“MOA”) with the SEC, PCC, Philippine Deposit Insurance Corporation, and Cooperative Development Authority to harmonise the list of requirements for the merger, consolidation and acquisition (“MCA”) of banks. The MOA aims to provide an efficient mechanism for financial institutions to pursue MCAs of banks.

Asset Management During Hard Times 

The Financial Institutions Strategic Transfer (“FIST”) Act was enacted to aid financial institutions to dispose of its non-performing assets (“NPAs”) by transferring them to FIST Corporations (“FISTC”). FISTCs are allowed to, among others, engage third parties to manage, operate, collect and dispose of NPAs, spend funds to renovate, improve complete or alter the NPAs acquired from financial institutions, and issue equity or participation certificates or other forms of investment unit instruments.