INSIGHTS is a monthly publication of BDB LAW to inform, update and provide perspectives to our clients and readers on significant tax-related court decisions and regulatory issuances (includes BIR, SEC, BSP and various government agencies).

DISCLAIMER: The contents of this Insights are summaries of selected issuances from various government agencies, Court decisions and articles written by our experts. They are intended for guidance only and as such should not be regarded as a substitute for professional advice.

Copyright © 2019 by Du-Baladad and Associates (BDB Law). All rights reserved. No part of this issue covered by this copyright may be produced and/or used in any form or by any means – graphic, electronic and mechanical without the written permission of the publisher.

Receipt of notices by unauthorized person cannot be deemed as receipt by the Taxpayer.

Taxpayer IBM Plaza Condominium Association alleged that the issuance of the Warrant of Distraint and/or Levy (WDL) violates its right to due process since the LOA, the PAN and FAN were received by unauthorized persons on behalf of IBM. Also, the FAN was allegedly issued before the expiration of the fifteen (15)-day period allowed to reply to the PAN and no FDDA was issued by the BIR. BIR alleged that the LOA, the PAN and the FAN were personally served to the Taxpayer and a certain Ms. Janice Melendrez received the same.

The CTA ruled that the issuance of the WDL violated the Taxpayer’s right to due process since the person who received the LOA and other Notices from the BIR was not authorized by IBM Plaza to receive the same. Ms. Janice Melendrez was an administrative assistant of IBM Plaza. BIR failed to present any evidence to show that they served the notices to any duly authorized representatives. It is incumbent upon the BIR to show that the notices were received by the taxpayer or the taxpayer’s authorized representative. The fact that the taxpayer was able to protest the FAN does not cure the BIR’s violation of petitioner's right to due process.Thus the receipt of the notice cannot be deemed as receipt by the Taxpayer. Hence, the assessment is void. (IBM Plaza Condominium Association, Inc., vs Commissioner of Internal Revenue, CTA Case No. 8740, September 2, 2019)

NOTE: In this case, while the Court ruled that the BIR must be able to prove that the notices were duly served to the taxpayer or to authorized representative, the Court did not however rule who are considered authorized representative of the taxpayer.

A waiver executed after the lapse of the prescribed period for the BIR to assess is an invalid waiver.

Taxpayer challenged the VAT deficiency assessment of the BIR alleging the latter’s right to assess has prescribed. The BIR argued to the contrary and showed that the Taxpayer executed a Waiver extending the period within which the assessment may be made.

The CTA held that the right of the BIR to assess the Taxpayer has prescribed. The Waiver executed is invalid for the same was executed after the 3-year period to assess has lapsed. The alleged deficiency arose from a sale transaction in the year 2007. However, the Waiver was executed in the year 2011 which is beyond the prescribed period. Thus, the BIR’s right to assess has already prescribed. (Philippine Communications Satellite Corporation vs. Commissioner of Internal Revenue, CTA Case No. 9219, September 11, 2019)

If both parties in a case are in pari delicto or in equal fault, the Taxpayer is estopped from raising any objection against the validity of the waivers it previously executed.

In this case, the Taxpayer raised the defense that BIR’s right to assess has prescribed. The BIR countered that the Taxpayer executed valid Waivers extending the prescriptive period for the BIR to assess the latter and the same was signed by its Corporate President. The Taxpayer challenged the validity of the Waivers alleging that its Corporate President was not authorized to execute and sign the waivers on behalf of Taxpayer.

The CTA ruled that since the subject waivers were executed prior to the issuance of RMO No. 14-16, the governing BIR Issuances in force at that time shall be observed which is RMO No. 20-90 and RDAO No. 05-01. The said RMO and RDAO requires the presentation of a written and notarized authority to the BIR. Here, there was no Board Resolution authorizing its President to sign the waivers on its behalf. However, the Court took note that the Taxpayer only raised the issue on the validity of the waiver on appeal. Thus, the Court finds Taxpayer in bad faith when it impugns the authority of its own signatory after it has benefited from the extended period of assessments. Even though the parties were both aware of the infirmities of the subject waivers, they still continued their dealings with each other on the strength of these waivers. Thus, since both parties in this case are in pari delicto or in equal fault, the Taxpayer is estopped from raising any objection against the validity of the said waivers. (First Philippine Power Systems Inc., vs. Commissioner of Internal Revenue, CTA Case No. 9067 September 9, 2019)

A final assessment is a notice "to the effect that the amount therein stated is due as tax and a demand for payment thereof." this demand for payment signals the time "when penalties and interests begin to accrue against the taxpayer and enabling the latter to determine his remedies." Thus, it must be "sent to and received by the taxpayer and must demand payment of taxes described therein within a specific period.

Taxpayer is seeking to reverse and set aside the Final Assessment Notice (FAN) dated July 22, 2015, in the aggregate amount of Php127,130,709.77, representing alleged deficiency income tax, value-added tax (VAT), expanded withholding tax (EWT). Petitioner contends that the final assessments for VAT and EWT are fatally infirm for failure to indicate the due date for payment thereof.

The CTA ruled that a perusal of the Audit Result/ Assessment Notices for VAT and EWT, reveals that there are two dates appearing in the "DUE DATE" portion thereof. On the upper portion, the due date indicated is April 30, 2015, while the lower portion indicates July 31, 2015. The two different due dates indicated in the VAT and EWT assessment notices leaves the taxpayer in a quandary as to when payment should be made. Thus, similar to when no due date is indicated in the FAN, as in the Fitness By Design case, two (2) due dates indicated in the FANs negate the respondent's demand for payment of the deficiency tax liabilities. (Benchmark Marketing Corp. vs. Commissioner of Internal Revenue, CTA Case No. 9296, September 04, 2019)

Hearsay evidence is defined as 'evidence not of what the witness knows himself but of what he has heard from others.' The hearsay rule bars the testimony of a witness who merely recites what someone else has told him, whether orally or in writing.

BIR assessed BSP for payment of DST pursuant to foreclosure sales. BSP seeks to refund the DST, surcharge and interest it paid with the BIR. Without the decision of the BIR on its claim for refund, BSP filed a Petition for Review with the CTA. BSP asserts that it paid the subject DST and penalties, as evidenced by Credit Advices to the Bureau of Treasury.

The CTA ruled that the pieces of evidence cannot be given credence by the Court for being hearsay evidence. In the instant case, none of the persons who prepared or issued the respective Credit Advices were presented before the Court, in violation of the hearsay evidence rule. As a consequence, these pieces of evidence cannot be given probative weight. Considering that BSP failed to present proof of prior payment, the same divests the CTA of jurisdiction to determine the merits of this case. In other words, there can be no valid claim for refund or nothing could be refunded where there is no showing of prior payment. (Bangko Sentral ng Pilipinas vs Commissioner of Internal Revenue, CTA Case No. 9478, September 26, 2019)

A Letter of Authority is invalid for having been served beyond thirty (30) days from date of its issuance.

The BIR assessed the taxpayer deficiency taxes, to which the latter protested against. The BIR denied the protest, prompting the taxpayer to file a case against the former before the CTA.

The CTA ruled in favor of the taxpayer. The Court reiterated that under Revenue Audit Memorandum Order (RAMO) No. 1-00, an LOA must be served or presented to the taxpayer within thirty (30) days from its date of issue; otherwise, it becomes null and void unless revalidated. In the present case, it appears that LOA No. eLA 201100068137/LOA-43B-2014-00000164 was issued on May 19, 2014 but was served to petitioner only on August 6, 2014. Based on the above rule, such LOA should have been served not later than June 18, 2014, the 30th day from date of its issuance. Even assuming that the above LOA is valid, still, the deficiency tax assessment should be deemed void because the revenue officers who actually conducted the audit examination of the taxpayer’s books of accounts and other accounting records for taxable year 2012 have no authority to do so. The Revenue District Officer is bereft of any power to authorize the examination of taxpayers or to effect any modification or amendment to a previously issued LOA because only the CIR or his duly authorized representatives are granted such power. (Kokoloko Network Corporation v. Commissioner of Internal Revenue, CTA Case No. 9574, September 24, 2019)

The judicial interpretations of a statute constitute a part of the law as of the date it was originally passed. Thus, the interpretation of Section 180 of the NIRC (now Section 179 of the NIRC of 1997, as amended), in the Filinvest case was deemed as part of the NIRC as of December 23, 1994 up to the present.

The BIR assessed the taxpayer deficiency DST, interest, and surcharge. While the protest was pending, the taxpayer voluntarily paid the same. It thereafter filed an administrative claim for refund. Due to the BIR’s inaction, the taxpayer filed the present case before the CTA.

The CTA partly granted the taxpayer’s petition. The application of the Filinvest case, which held that instructional letters, as well as the journal and cash vouchers evidencing the advances extended to affiliates qualified as loan agreements are subject to DST, to the present case will not constitute a violation of the principle of nonretroactivity of laws and rulings because the interpretation of Section 180 of the NIRC (now Section 179 of the NIRC of 1997, as amended), in the Filinvest case was deemed constituted as part of the NIRC as of December 23, 1994 up to the present.

However, the Court stated that good faith and honest belief that one is not subject to tax on the basis of previous interpretation of government agencies tasked to implement the tax law, are sufficient justification to delete the imposition of surcharges and interest. At the time the advances were made, the taxpayer relied on prevailing court decisions to the effect that inter-company loans and advances covered by inter-office memoranda were not loan agreements subject to DST. Such reliance on the said cases justifies the non-imposition of surcharge and interest. (Eagle II Holdco, Inc. v. Commissioner of Internal Revenue, CTA Case No. 9637, September 10, 2019)

An assessment arrived at resulting from the mere computation of deficiency taxes is not the decision appealable to the CTA for there is no disputed assessment yet.

The taxpayer received an electronic mail from the Revenue Officer, wherein various payment forms containing the tax deficiency assessment for various taxes were attached therein. The taxpayer paid the same under protest, and served a protest on the assessment to the BIR. Due to the BIR’s inaction, the taxpayer filed a case before the CTA.

The CTA held that a cursory reading would show that the same cannot be considered as an assessment constituting a demand for payment nor a final decision of the CIR. It is a mere computation of deficiency taxes, notifying taxpayer of the amounts stated therein. There was even neither demand for payment indicated in the tenor of the electronic mail, nor in the document attached therein. The electronic mail was sent merely to inform petitioner of its liabilities and this was considered as the BIR's Notice of Informal Conference. It does not formally inform petitioner of its tax liabilities and there is no formal demand to pay the same. Thus, in the instant case, there is no disputed assessment to speak of. The document is not the assessment contemplated under Section 228 of the NIRC of 1997, as amended, that would require a protest from petitioner.

In the instant case, records reveal that at the time of the filing of the instant Petition for Review, no final assessment notice has yet been issued by the CIR. Thus, the appeal of this case over the alleged assessment is premature. This Court reiterates that the decision contemplated in R.A. 1125 is one which constitutes a final decision or inaction from a disputed assessment of the CIR. Consequently, the so-called assessment arrived at resulting from the mere computation of deficiency taxes is not the appealable decision for there is no disputed assessment yet. The taxpayer wrongly considered that the BIR has already rendered a final decision or inaction on the matter that is appealable before the CTA. (Axeia Development Corporation v. Commissioner of Internal Revenue, CTA Case No. 9816, September 16, 2019)

An assessment is not necessary prior to the filing of a criminal complaint.

Enviroaire, represented by its president, Tyrone Ong, and its treasurer, Arlene Chua, was charged with violation of Section 254 (attempt to evade or defeat tax) and 255 (failure to supply correct and accurate information) of the Tax Code. In its defense, Enviroaire maintained that there was no due process afforded to them as they did not receive the PAN and FAN. BIR alleged that it issued notices to the accused via registered mail, however, there was no proof that the same was received by the accused, nor the authorized representatives. Further, records show that the PAN and FLD were only issued in 2016. Therefore the accused argue that the assessment already prescribed since the Income Tax Return for 2007 was filed in 2008.

The Court ruled that an assessment is not necessary prior to the filing of a criminal complaint. To sustain conviction for an attempt to evade or defeat tax under Section 254 in relation to Sections 253(d) and 255 of the Tax Code, the following elements must be established beyond reasonable doubt: (1) There is a tax imposed on the corporation under the NIRC; (2) An attempt in any manner to evade or defeat any tax imposed under the NIRC or the payment thereof; (3) Such attempt to evade or defeat tax or the payment thereof is willful; and (4) In the case of corporations, the penalty shall be imposed on the president, general manager, branch manager, treasurer, officer-in-charge, and the employees responsible for the violation.

In finding that the accused are guilty of the offense charged, the Court ruled that there was undoubtedly a willful attempt to evade or defeat tax imposed, as contemplated in Section 254 in relation to Section 253 and 256 of the NIRC, as amended. This is so since taxpayer’s sales amounting to over 200 million pesos, which were perfected and consummated in 2007, should have been declared in 2007. However, the sales consistently remain unreported for two consecutive taxable periods, resulting in the substantial under-declaration of more than 30% of sales or income. Further, the accused’s under-declaration of the tax, as well as attempting to mislead the Court in the method of accounting used, show that there was an attempt to undeclare tax.

As such, the Court found Enviroaire guilty beyond reasonable doubt. Accused Tyrone Ong and Arlene Chua, being the president and secretary of Enviroaire, were likewise found to be criminally liable.

With regard to the civil aspect of the case, the same is deemed simultaneously instituted. However, the Court ruled that prosecution failed to present any evidence to prove that the assessment notices were duly served and received by accused Tyrone N. Ong and Arlene Chua. Accordingly, the absence of any proof by competent evidence of the receipt of the PAN and FAN/FLD by the taxpayer renders the assessments void. (People of the Philippines vs Enviroaire, Inc., represented by Tyrone N. Ong & Arlene Chua, CTA Crim. Case No O-408, September 4, 2019)

The invalidity of the assessment negates the element that the failure to pay taxes was willful.

Here, the taxpayer was charged for violating Section 255 of the tax code or the failure to pay, withhold and/or remit to deficiency income tax, value-added tax, and expanded withholding tax, all for taxable year 2007.

The Court ruled that the prosecution must prove beyond reasonable doubt the existence of the following elements before a taxpayer can be held liable under Section 255 of the tax code: (1) The offender is required under the 1997 NIRC, as amended, or by rules and regulations promulgated thereunder to pay any tax, make a return, keep any record, or supply correct and accurate information; (2) The offender fails to pay such tax, make such return, keep such record, or supply correct and accurate information, or withhold or remit taxes withheld, or refund excess taxes withheld on compensation, at the time or times required by law or rules and regulations; and (3) Such failure was willful.
In acquitting the accused, the Court ruled that the prosecution failed to prove elements 2 and 3. Element no. 2 is undoubtedly replete with inaccuracies, devoid of empirical evidence. In the Information, it was stated that the accused is liable for the alleged deficiency VAT but the prosecution failed to present the VAT Registration of the accused. Further, the PAN, FAN, and FLD issued by the BIR to the accused assessed the latter of deficiency percentage tax instead of VAT. Also, accused was assessed for expanded withholding tax, however, the prosecution failed to adduce evidence if indeed the accused is actually the withholding agent for the alleged EWT.

As to the third element, the prosecution failed to prove the validity of the deficiency tax assessments by failing to rebut the denial of the accused that the LOA, PAN, FAN, and FLD were duly served. Thus, the invalidity of said assessments has further cast doubt to the liability of the accused for such deficiency tax assessments as charged in the Information. (People of the Philippines vs. Rosalinda Valisno Cando, Owner of Gasat Express Quirino Hi-way, Sto. Cristo, San Jose Del Monte, Bulacan, CTA Crim. Case No O-634, September 11, 2019)

NOTE: In the Environaire case, the Court ruled that that an assessment is not necessary prior to the filing of a criminal complaint. However, the Court found that there was a willful attempt to evade or defeat tax imposed since the non-declaration of the accused on his sales resulted to the substantial under-declaration of more than 30% of sales or income. Thus, the Court found the accused guilty. In the Cando case, the Court did not find that the failure to pay tax was willful, as discussed above.

Ratification retroacts to the date of the subject of such act.

The CIR filed a Petition for Review on the Order of the Court in Division granting the claim for refund of taxpayer. The CIR argues that the taxpayer’s Petition for Review filed on December 19, 2014 in the Court in Division lacks a proper verification and certification against forum shopping since the signatory, Atty. Editha Hechanova, was not authorized to sign the same in the SPA dated May 10, 2012 and the alleged ratification of said SPA under Certification/SPA dated February 23, 2015 does not exist as there was no authority to ratify, hence, no valid petition was filed upon the expiration of the two-year prescription period to claim for refund.

The Court ruled that act of taxpayer's board through its Chairman issuing an SPA confirming and certifying that said law firm was appointed as its attorney-in-fact and stated categorically that Atty. Hechanova was among taxpayer’s attorneys-in-fact is considered ratification. Furthermore, in Lopez Realty, Inc., et al. v. Spouses Reynaldo Tanjangco and Maria Luisa ArguellesTanjangco, the Supreme Court explains the nature of such ratification and ruled that it retroacts to the date of the subject of such act. Thus, the Court in Division did not err in allowing Atty. Hechanova as signatory in the subject verification and certification against forum shopping. (Commissioner of Internal Revenue vs. Sartorious Aketiengesellschaft, CTA EB No 1858 (CTA Case No. 8951), September 16, 2019)

The withholding agent only needs to prove the fact of withholding and not the actual remittance to the BIR of the taxes withheld.

The CIR filed a Petition for Review on the Order of the Court in Division granting the claim for refund of the taxpayer. The CIR maintains that the taxpayer is not entitled to its claim for refund of alleged erroneously paid Final Withholding Taxes (FWT) for taxable years 2012 and 2013 because the taxpayer fails to prove the fact of remittance of the taxes withheld to the BIR. The BIR further argues that the testimonies of the various payors and withholding agents are required to prove remittance, which the taxpayer failed to do.

The Court ruled that a withholding agent's bounden duty is to guarantee that the pertinent income taxes they withheld from the taxpayers are paid in favor of the government. On that account, the withholding agent only needs to prove the fact of withholding and not the actual remittance to the BIR of the taxes withheld. As to what evidence may be presented to establish the fact of withholding, Section 58(B) and (C)10 of the NIRC of 1997, as amended, highlights the withholding agents' responsibility to deduct and remit taxes due on their income payments by requiring them to submit annual information return, as well as provide the recipients of income written statements containing: a) the amount of income paid; b) the details of the person to whom such payment was made; and c) the specific details of the sums they deducted and withheld. (Commissioner of Internal Revenue vs. Nes Global Talent Limited, CTA EB No 1903 (CTA Case No. 9065), September 13, 2019)

Revenue Memorandum Circular No. 92-2019, August 8, 2019 - This circularizes the full text of Republic Act (R.A.) No. 11346 which was approved by the President on July 25, 2019.

R.A. No. 11346 increased the excise tax on tobacco products, imposed excise tax on heated tobacco and vapor products, increased the penalties for violations of provisions on articles subject to excise tax, and earmarked a portion of the total excise tax collection from sugar-sweetened beverages, alcohol, tobacco, heated tobacco and vapor products for universal healthcare.

R.A. No. 11346, among others, imposed an excise tax at a rate of 10 pesos per pack of 20 units of heated tobacco products and 10 pesos per 10ml of liquid solution or gel on vapor products, both subject to an increase of 5% per year effective January 1, 2021. As for cigars, in addition to the ad valorem tax of 20% of the net retail value per cigar, a specific tax rate of 5 pesos shall be imposed, with an increase of 5% per year effective January 1, 2024. For cigarettes, regardless if they were packed by hand or machines, they are subject to excise tax at a rate of 45 pesos starting January 1, 2020, with an increase of 5 pesos, every year untile the year 2023, as well as another 5% increase per year effective January 1, 2024.

The law also increased the penalty for various violations under the NIRC. Notably, it increased the penalty for shipment or removal of liquor or tobacco products under false name or brand or as an imitation of an existing brand being to a fine of 1,500,000 to 15,000,000 pesos and imprisonment of 6 years and 1 day to 12 years. When it comes to unlawful possession or removal of articles subject to excise tax without payment of the tax, the penalty now ranges from 100,000 pesos to an amount not less than 10 times the amount of the excise tax due but not less than 50,000,000 pesos and imprisonment ranging from 60 days to 8 years. It likewise updated the penalty for offenses relating to stamps, with the fine now ranging from 10,000 pesos to an amount of 10 times the value of the illegal stamps seized or 500,000,000, whichever is higher, and imprisonment ranging from 5 years to 15 years.

Joint Memorandum Circular (JMC) No. 2019-01, May 17, 2019 – This was issued to lay down the general guidelines for reviewing and adjusting the reasonable fees and charges which the LGUs are allowed to impose, pursuant to the provisions of the Local Government Code (LGC) of 1991 and the Ease of Doing Business and Efficient Government Service Delivery Act of 2018.

The JMC enumerated, among others, the common and allowable fees and charges that may be imposed by the various LGUs (provinces, cities, municipalities, and barangays) and the considerations to be taken into account in determining the just and proper rates of said fees and charges.

To effectively implement the JMC, the local chief executives of the LGUs was advised to issue an executive order creating an oversight committee on the revision of the fees and charges. It likewise enjoined the DOF and DILG to coordinate with each other and monitor compliance of its directives.

SEC Memorandum Circular No. 19 series, September 17, 2019 – This provides for guidelines regarding the disclosure requirements on advertising of financing companies and lending companies and reporting of online lending platforms.

This memorandum circular seeks regulate the advertisements conducted by online lending platforms. The required disclosures in their advertisements are as follows:

A. Corporate Name, SEC Registration Number and Certificate of Authority to Operate a Financing/Lending Company (CA) Number in a conspicuous portion of their Advertisements and Online Lending Platforms.
B. An advisor for prospective borrowers to study the terms and conditions in the disclosure statement before proceeding with the loan transaction.
Also, the circular requires the financing companies and lending companies shall register their online lending platforms as business names. Further, the companies shall submit to the SEC, an affidavit of compliance containing a report of all their existing Online Lending Platforms. It shall be submitted, within ten (10) days from the effectivity of the circular. The report shall include but not limited to the following:

1. Name of Online Lending Platform/s;
2. Proof of compliance;
3. Images of the Online Lending Platform/s as they appear to the public; and
4. Illustration of the Online Lending Platforms showing how the required Disclosure and Advisory are displayed.

1. Non-Compliance with the required disclosures:

2. Non-Compliance with the registration of business name:

3. Failure to report to the SEC:

4. Continuous non-compliance /submission of false or fraudulent Affidavit of Compliance

If the foreign corporation still exists legally in the place of incorporation, its license to do business in the Philippines remains valid.

This Opinion is issued to determine whether a foreign corporation licensed to do business in the Philippines needs to renew its SEC license on or before the expiration the issuance of the license on October 2020.
In the Revised Corporation Code, Section 143, a foreign corporation may commence to transact business in the Philippine and continue to do so for as long as it retains its authority to act as a corporation under the laws of the State of its incorporation, unless the license is revoked, suspended, revoked, surrendered, or annulled in accordance with this Code or other special laws.

The SEC ruled that since the corporation still legally exists in the place of incorporation, its licensed to business in the Philippines remains valid, unless sooner surrendered, revoked, suspended, or annulled in accordance with the Revised Corporation Code or other special laws. (SEC-OGC Opinion No. 19-33, September 9, 2019, RE: Term of License to do Business of a Foreign Corporation)

A corporation engaged in the retail trade business does not need to amend its Articles of Incorporation to include an e-commerce business.

This Opinion was issued to due to request where a corporation engaged in a brick and mortar retail trade business seeks clarification on whether it needs to amend its Articles of Incorporation to include e-commerce.

The SEC ruled that the corporation does not need to amend its Articles of Incorporation. Based on Retail Trade Liberalization Act, retail trade is “an act, occupation or calling of habitually selling direct to the general public merchandise, commodities or goods for consumption.” The definition does not distinguish between retail trade carried in physical store and through online channels. (SEC-OGC Opinion No. 19-35, September 9, 2019, RE: E-Commerce mode of Retail Trade)

The SEC refrained from answering the query since it will affect the substantive and contractual rights of the private parties, i.e inactive stockholders’ right to vote.

Philippine Veterans Bank had a substantial number of stockholders who have not attended the annual stockholder meetings. Despite attempts at communications, the parties did not attend.

As such Philippine Veterans Bank inquired on whether its practice of representing inactive/dormant stockholders in the stockholders' meeting to muster the required quorum is acceptable.

The SEC did not answer its query definitively. It opined that the same would affect the substantive and contractual rights of the private parties, that is, the inactive stockholders’ right to vote.

However, for the purposes of guidance and information, the SEC noted that the Revised Corporation Code is instructive for Philippine Veterans Bank. The Code states that a stockholder can vote indirectly through three methods:

(1) by means of written proxy; (2) by a trustee under a voting trust agreement, or (3) by executors, administrators, receivers and other legal representatives duly appointed by the court.
These instances are exclusive in nature if the instance/circumstance is not among the three specified the stockholder may not vote indirectly. It would appear, then, that if the methods of Philippine Veterans Bank do not fall in the three methods prescribed, it would not be binding. (SEC-OGC Opinion No. 19-37, September 13, 2019, RE: Mustering the required quorum; representation of the dormant/inactive stockholders)

Online selling is allowed even if the corporation is non-stock corporation.

The Opinion was due to a request by non-stock corporation on whether they are permitted to sell products online.

The SEC ruled that the corporation may sell products online. According the Revised Corporation Code, a non-stock corporation may obtain any profit incidental to its operation provided that the same is not distributable as dividends. The SEC classifies the selling of products by a non-stock corporation as an incidental power of the corporation to carry out its purpose as stated in the articles of incorporation. (SEC-OGC Opinion No. 19-39, September 18, 2019, RE: Online and Secondary Purpose.)

The business of prosthetics constitutes a contract for a piece of work and not sale.

The Opinion was issued due to the request of a corporation seeking clarification as to the status of its prosthetics business.

The SEC ruled that the business of prosthetics is a contract for a piece of work. Due to the nature of business which involves the tailor fitting of artificial limbs based on the unique or customized design per the request of the customer. Since prosthetics are not readily available it is contract for a piece of work and not a sale. (SEC-OGC Opinion No. 19-41, September 19, 2019, RE: Retail Trade; Prosthetics)

Insurance Commission Circular Letter (CL) No. 2019-44 dated September 2, 2019 – this letter, which supplements CL No. 2018-03, directs all Health Maintenance Organizations (HMOs) doing business in the Philippines to adhere to the guidelines in the conduct of examination of affairs, financial condition, and methods of doing business of HMOs.

In relation to RECORD-KEEPING, every HMO is required to keep its books, records, accounts and vouchers in such manner that the Commission may readily verify its Audited Financial Statements (AFS) and/or Interim Financial Statements (IFS), ascertain HMOs’ solvency, as well as their compliance with the provisions of Executive Order No. 192, Series of 2015.

In relation to the CONDUCT OF EXAMINATION, the Commission may require, when public interest so demands, to examine the records of the HMOs authorized to transact in the Philippines and any other person, firm or corporation managing the affairs and/or property of such HMO. Moreover, to conduct physical inventory of the HMO’s cash and all investments to ascertain the value, existence and ownership of such assets. Refusal to do so shall suspend the authority of an HMO to conduct business in the Philippines. In addition, it will not be allowed to continue its operations until it has fully complied with the provisions herein.

In relation to the PRESERVATION OF RECORDS, all books of accounts, records, vouchers and other documents supporting an HMO’s AFS shall be maintained for at least five (5) years following the date of such statements was filed with the Commission, or if the AFS has already been examined, the date of the examination of the same was closed.

Insurance Commission Circular Letter (CL) No. 2019-49 dated 12 September 2019 – this letter, which supplements CL No. 2018-72 dated 28 December 2018, directs all insurance/reinsurance companies doing business in the Philippines to adhere to supplemental guidelines as regards the pre-approval of outsourcing agreements/contracts and evaluation of the same during regular and special examinations conducted by the Commission.

Notably, a written application for pre-approval of an outsourcing agreement/contract shall be filed with the Commission. Upon receipt thereof, the Commission’s Regulation, Enforcement and Prosecution Division (REPD) shall determine whether the proposed application violates any other provision in the above-mentioned guidelines, submit its recommendation to the Commissioner – which in turn will approve or disapprove the same. Ultimately, the pre-approval of the Commission is required in order for an insurer/reinsurer to enter into an outsourcing agreement/contract with a BPO Provider.

Bangko Sentral ng Pilipinas (BSP) Circular No. 2019-1048 dated September 6, 2019 – This provides for the amendments/deletions of certain provisions in the Manual of Regulations for Banks (MORB) and Manual of Regulations for Non-Bank Financial Institutions (MORNBFI).

The Monetary Board (MB) approved the amendments to MORB and MORNBFI pertaining to Regulations on Financial Consumer Protection, and guidelines and procedures governing the Consumer Assistance and Management System of BSP-Supervised Financial Institution (BSFI).

Section 1 provides for the Financial Consumer Protection Framework (Framework), which establishes the guidelines and expectations from BSFIs to institutionalize consumer protection as an integral component of corporate governance and culture as well as risk management. It establishes Consumer Protection Risk Management System (CPRMS), which includes governance structure, policies, processes, measurement and control procedures to ensure that consumer protection risks are identified, measured, monitored and mitigated. It also provided for the Consumer Protection Oversight, which delineates the responsibilities of the Board of Directors and Senior Management in approving and overseeing the implementation of this Framework.

Section 2 provides for ensuring the application of Policies and Procedures, Consumer Protection Standards of Conduct, which should reflect the core principles, which BSFIs must observe at all times in their dealings with financial consumers. First, under Disclosure and Transparency, BSFIs must ensure that their consumers have a reasonable holistic understanding of the products and services, which they may be acquiring or availing. Second, under Protection of Client Information, financial consumers have the right to expect that their financial transactions, as well as relevant personal information disclosed in the course of transaction, are kept confidential and are secured. Third, under Fair Treatment, the financial consumers should be treated fairly, honestly and professionally at all stages of its relationship with the BSFI. Fourth, under Effective Recourse, financial consumers should be provided with accessible, affordable, independent, fair, accountable, timely and efficient means for resolving complaints with their financial transactions. Lastly, under Financial Education and Awareness, financial education initiatives give consumers knowledge, skills and confidence to understand and evaluate the information they receive and empower them to make informed financial decisions.

Section 3 provides that BSP may deploy enforcement actions to promote adherence to the BSP Regulations on Financial Consumer Protection.

Bangko Sentral ng Pilipinas (BSP) Circular No. 2019-1050 dated September 18 2019 – This provides for guidelines on voluntary surrender of a Banking License and some amendments with the MORB.

Section 1 retitles Chapter 1 of the Part One of MORB on “Liquidation and Receivership” to “Cessation of Banking Business.”

Section 2 provides for that a bank that seeks to voluntary surrender its banking license must secure prior approval from the BSP. A bank shall submit to appropriate supervising department of BSP an application letter, signed by the President or any authorized representative, for voluntary surrender of its banking license. The application letter shall indicate the reason/s, as well as other documentary requirements by the BSP.

Notably, the voluntary surrender of banking license to BSP will not exempt the bank’s directors, officers and employees from any administrative or criminal sanctions arising from a determination that a violation of banking law, rule or regulation was committed.

Memorandum Circular No. 2019-033, September 12, 2019 – This circular provides for guidelines regarding the inspections in the economic zones by regulatory agencies.

The Circular stated that government inspectors may be allowed entry into the economic zones and facilities of locator enterprises provided that the following documents are available: (1) Inspection Authority and (2) Company ID of the Inspector. The Inspection Authority may in the form a memorandum signed by the head of the regulatory agency or designated representative. A Company ID issued by the regulatory agency is considered as the proof that the inspector is a legitimate employee of the regulatory agency.