A comprehensive overview of legislative developments that impact the business environment in the Philippines

 

The current administration is continuing its push to bolster the Philippine economy’s resilience by putting strong policies in place to promote state and market collaboration. These include initiating much-needed reforms to open the market, supplementing job creation through ambitious infrastructure projects, and strategically addressing poverty reduction and labour expansion. The developments listed hereunder reflect the country’s commitment to sustained and inclusive growth driven, in part, by a prudent legislative agenda.

Banking

Congress has had its hands full in recent years, enacting legislation pertinent to the banking industry that seeks to enable regulatory bodies to respond faster to changes in the financial landscape, quickly adopt rules consistent with international best practices and become sufficiently empowered to protect the financial health of the burgeoning economy. Amendments to the New Central Bank Act: The amendments to Republic Act (RA) No. 7653, otherwise known as the New Central Bank Act, were enacted in February 2019 to align the operations of the central bank, Bangko Sentral ng Pilipinas (BSP), with global best practices as well as improve the BSP’s corporate viability and enhance its capacity for crafting proactive policies amid rising interconnectedness in financial markets.

The amendments authorise the increase in the BSP’s capitalisation from P50bn ($930m) to P200bn ($3.7bn) and exempt the BSP from taxes on income derived from its governmental functions. Moreover, it restores the BSP’s authority to issue debt as part of its regular operations, and removes money supply and credit levels as bases for determining monetary policy.

The main thrust of the law is to put the BSP in a better position to pursue its mandate of maintaining price and financial stability, and to give it greater flexibility in determining the size and timing of its monetary operations and in setting monetary policy.

The amendments also increase the coverage of institutions under BSP supervision to include money service and credit granting businesses, as well as payment systems operators. This will enable the BSP to identify and address potential risks in transactions between banks and other financial institutions. Philippine Deposit Insurance Act: The Philippine Deposit Insurance Corporation (PDIC) was formed to insure all bank deposits and provide deposit insurance coverage for the public. Its charter was recently amended to equip the PDIC with enhanced authority to further improve deposit protection practices.

In 2016 RA No. 10846 amended the PDIC charter by streamlining the liquidation process for banks closed by the BSP. Liquidation procedures include the option for the PDIC to purchase assets and assume the liabilities of a failed bank, while also authorising the PDIC, as receiver, to acquire the assets of the closed bank without prior approval of the liquidation court. Notably, the amendments likewise provide for the settlement of deposit insurance claims, based not only on the closed bank’s records, but also on the depositor’s evidence of deposit. Depositors with uninsured deposits will also benefit from the amendments as uninsured deposits are elevated from ordinary credit to ordinary preferred credit, hence improving the likelihood of recovering uninsured money deposited in a failed bank.

The reforms in the law enable the PDIC to play a more proactive role in preserving banks’ franchise value while minimising disruption in the banking system. Anti-Money Laundering Act: Additional safeguards against money laundering were enacted with the passing of RA No. 10927 in 2017, which extended the regulatory coverage outlined in the Anti-Money Laundering Act to casinos and gambling establishments, including online, shipboard, land-based and junket operators. The new law requires that all casinos develop sound risk management policies and practices to hedge against the illegal practices of patrons. Casino management is thus enjoined to take a more proactive role by frequently conducting internal checks and audits. Moreover, casino patrons will now be required to present their true identities as required by the Anti-Money Laundering Council. Any single patron who makes a cash transaction of more than $100,000 will be reported to the council by the gaming operator.

Occupational Safety & Health Standards

The year 2019 will mark the first year of full implementation of RA No. 11058, otherwise known as the Act Strengthening Compliance with Occupational Safety and Health Standards and Providing Penalties for Violations Thereof. The act covers all types of businesses and non-government entities, including establishments under the purview of the Philippine Economic Zone Authority, and micro and small enterprises. The landmark legislation also seeks to further enforce the constitutional right of complete protections for labourers. This is done through the provision of broader safeguards to ensure the right of workers to health and safety, and, specifically, to stop the marked increase in cases of disease and injuries in the workplace. Obligations of employers: RA No. 11058 imposes upon employers the duty to comply with occupational health and safety standards by providing employees a workplace that is free from hazards as well as furnished with approved facilities, devices and protective equipment. Moreover, employers are specifically mandated by the law to inform their workers of all types of occupational hazards that may affect the workplace. Rights of employees: The legislation is aimed at providing greater protection to workers. Thus, employers are prohibited from taking retaliatory action against employees when they report workplace accidents, dangerous occurrences and other hazards to the Department of Labour and Employment (DOLE) and/ or other appropriate government agencies. In addition, employees now have the right to refuse to render work if there is imminent danger that may lead to bodily harm. Penalty: The law sets forth clear penalties for violations of occupational and health standards. In particular, a fine of P100,000 ($1860) per day may be imposed as a result of an employer’s wilful and deliberate failure or refusal to comply with occupational safety standards until the violation is corrected.

Telecommuting Act

RA No. 11165, otherwise known as the Telecommuting Act, was passed in January 2019 to provide alternative avenues for employees to carry out their work in light of recent technological advances and to address traffic congestion. Nature of telecommuting: Telecommuting refers to a work arrangement where an employee in the private sector is allowed to work from any location, other than the regular workplace of the employer, with the use of telecommunication and/or computer technologies. Thus, the employer may offer a telecommuting programme to its employees on a voluntary basis. Regulations: Under the telecommuting arrangement, an employer is required to ensure that the telecommuting employees are given the same treatment as employees working at the employer’s premises. An employer is still required to abide by the minimum labour standards, such as, but not limited to, compensation, a minimum number of work hours, overtime, rest days and leave entitlement. Moreover, all telecommuting employees shall be covered by the same set of applicable rules and the existing collective bargaining agreement, if any. Registering telecommuting work arrangements: The employer is required to notify the DOLE on the adoption of a telecommuting work arrangement by submitting in print or digital copy the relevant report form to the nearest DOLE field or provincial office. If the employer has branches or operational units outside the region of its principal office, each branch or operational unit shall also submit its respective report to the nearest DOLE field or provincial office that has jurisdiction over that branch or operational unit.

Expanded Maternity Leave

Signed into law in February 2019, RA No. 11210, or the 105-Day Expanded Maternity Leave Law, increases current maternity leave benefits for covered female employees, which, before the passage of such a law, stood at 78 days for caesarian delivery and 60 days for normal delivery, miscarriage or abortion. According to the secretary of labour and employment, the law was passed to help address the low female workforce participation rate, currently ranging between 45-50%, which can be partly attributed to their multiple roles at home. Coverage: In particular, the law provides that all female workers in the government and female members of the Social Security System, regardless of their civil status, shall be granted the following benefits:

• 105 days maternity leave with full pay and an option to extend for an additional 30 days without pay;

• An additional 15 days maternity leave with full pay if the female worker qualifies as a solo parent under RA No. 8972, otherwise known as the Solo Parents’ Welfare Act of 2000;

• The potential allocation of up to 7 days of said benefits to the child’s father, whether or not the child’s father is married to the female worker. In the event of the father’s death, absence or incapacity, the same benefit may be allocated to an alternate caregiver who may be a relative within the fourth degree of consanguinity or the current partner of the female worker sharing the same household; and

• 60 days of leave with full pay to be granted for a miscarriage or emergency termination of pregnancy. The seven-day leave benefit granted to the father, when married to the female worker, shall be in addition to the paternity leave benefit granted under RA No. 8187, otherwise known as the Paternity Leave Act. Maternity leave benefits may now also be redeemed regardless of frequency of pregnancy or childbirth, as compared to the previous law, which limited the grant of maternity leave benefits only to the first four deliveries.

Revised Corporation Code

February 2019 saw the passage of RA No. 11232 into law, otherwise known as the Revised Corporation Code, which updates the previous 38-year-old Corporation Code by incorporating international best practices and gearing existing regulations towards the use of technology. The Revised Corporation Code likewise implements features specifically seeking to improve the ease of doing business in the Philippines, including the lifting of restrictions on corporate term and minimum capitalisation. Remote communication and in absentia voting: With the enactment of the Revised Corporation Code, stockholders and members are no longer required to be physically present or represented by proxies in meetings, as required under the previous Corporation Code.

Following the modern trend of allowing board meetings to be conducted via video conferencing and teleconferencing, the Revised Corporation Code currently allows stockholders and members of a corporation to attend and exercise their right to vote through remote communication or in absentia when authorised under the company’s corporate by-laws and pursuant to the rules and regulations issued by the Securities and Exchange Commission (SEC). Perpetual term: Under the Revised Corporation Code, the life of a corporation is no longer limited to 50 years, subject to renewal. Currently, the default rule is that corporations shall have a perpetual existence, except as otherwise provided under its articles of incorporation. Moreover, corporations existing prior to the Revised Corporation Code’s effective date shall also have a perpetual term, unless the corporation, upon the required vote of its stockholders, notifies the SEC that it elects to retain its specified term. The new code is expected to reduce the instances in which corporations need the SEC’s approval to continue operations at the end of its prescribed corporate term, notwithstanding its continuing status as a going concern.

One-person Corporation

The Revised Corporation Code has removed the minimum number of incorporators, directors and trustees, which stood at five under the previous regime. Thus, a corporation can now be formed by between one and four people, with a new chapter being created in order to facilitate the rules for a one-person corporation (OPC). An OPC may be formed by a single stockholder, who must be a person, trust or an estate. Accordingly, a corporation can neither form nor be a stockholder of an OPC. Notably, banks and quasi-banks; pre-need, trust, insurance, public and publicly listed companies; and non-chartered, government-owned and controlled corporations may not be incorporated as an OPC. Minimum capital stock: In order to encourage the formation of corporations, whether as a stock, non-stock or an OPC, the Revised Corporation Code has removed the minimum capital requirement in order to form a corporation. The previous regime required that at least 25% of the corporation’s authorised capital stock be subscribed, and at least 25% of the total subscription be paid by the stockholders, provided that the minimum paid-up capital is not lower than P5000 ($93).

Taxation

One full year after the implementation of the Tax Reform for Acceleration and Inclusion (TRAIN) law, the second package of tax reforms, entitled the Tax Reform for Attracting Better and High-Quality Opportunities (TRABAHO) bill, was being tackled by Congress in 2019. Unlike its predecessor, which deals with the personal taxes of individuals, the TRABAHO bill mainly deals with corporate taxes. Broadly, the tax amendments are as follows:

• The corporate income tax of domestic and foreign corporations shall be decreased; and

• With the corollary decrease of the corporate income tax, interest expense reduction shall likewise be decreased. In sum, corporations will not be able to charge more interest expense with the proposed law. The TRABAHO bill was stalled in the Senate as of August 2019 in the face of pushback from interest groups seeking to ensure that foreign investors will not be alienated by the law. The law is nevertheless a priority on the part of the legislative agenda, which aims to ease the burden of corporate income tax, enabling the Philippines to be more competitive in the region.

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The Report: The Philippines 2019

Legal Framework chapter from The Report: The Philippines 2019

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