Suits the C-Suite

02 September 2019

Cecille S. Visto

Redefining corporate rules Part 2

Second of two parts In the first part of this article, we covered Republic Act 112321 or the Revised Corporation Code of the Philippines (RCC), which redefined the corporate rules to promote ease and flexibility in doing business, as well as take full advantage of technological innovation. We also discussed the first two key provisions in the RCC, which make it relevant for the changing global business landscape. These were: (1) the relaxation of the minimum number of incorporators, and the residency requirement for incorporators and directors; and (2) the introduction of the One-Person Corporation (OPC). We will now continue with the other provisions in the RCC which are considered by many as significant changes highly beneficial to the Philippine business community. ALLOWING PERPETUAL EXISTENCE AND REVIVAL OF CORPORATIONS Under the old rules, the maximum corporate term is 50 years, unless extended for a maximum of 50 years (or sooner dissolved). The RCC, however, now allows companies to exist in perpetuity, unless majority of the stockholders elect to retain its specific term pursuant to the Articles of Incorporation (AoI). Corporations with expired terms may also be revived under the RCC. The revival applies to their corporate existence, all their rights and privileges under the certificate of incorporation, and their existing duties and liabilities prior to the revival. Certain types of companies, such as banks, pre-need and insurance, pawnshops and other financial intermediaries need favorable recommendation from the appropriate government agency for the revival. While the RCC does not provide any exception to the revival of a corporation whose corporate life has expired, it appears that the SEC proposes to exclude the benefit of revival to corporations whose registration were revoked for reasons or causes other than the non-filing of reports. Based on the draft rules on revival of corporations that the SEC has circulated, the regulatory body clarified that the revival applies only to corporations with expired terms, not to those whose registrations have been revoked due to fraud or continuous inoperation. We hope that the final regulations will specifically address issues on corporate revival to erase any doubt on the ability of corporations whose registrations have been revoked to avail of the benefit of revival under the RCC. INTRODUCING MEANS FOR DISPUTE RESOLUTION AND EMERGENCY ACTION Intra-corporate disputes are inevitable but the RCC provides stop-gap measures to minimize, if not totally prevent, long-drawn intra-corporate disputes in court. Companies now have the option to include an arbitration clause in the AoI. Arbitration is an option to resolve issues between the corporation and its stockholders arising from the implementation of AoI or By-Laws or from intra-corporate relations. With this new provision, all controversies can be referred to arbitration. However, the SEC still needs to formulate the governing rules, including the organization of an arbitral board. The board of directors has also been given the prerogative to constitute an emergency board to undertake any emergency action sought to prevent grave damage to the corporation. Vacancy in the board may be filled temporarily when the vacancy prevents the remaining directors from constituting a quorum and the remaining directors voted unanimously. The action of the temporary director shall be limited to the emergency action necessary and his or her term shall cease within a reasonable time from the termination of the emergency or upon the election of the replacement director. The SEC is expected to clarify in a separate issuance what may constitute grave, substantial, and irreparable loss or damage to the corporation that will necessitate the appointment of an emergency board. TAKING ADVANTAGE OF TECHNOLOGY From filings to notices to attendance in board meetings and voting, the law takes full cognizance of advances in technology. AoIs and their amendments may now be filed electronically, fortifying the already established Company Registration System of the SEC. The RCC allows written notices to be sent to regular stockholders through e-mail or such other means that the SEC will allow under its guidelines. A corporation may also specify in its By-Laws the manner of communication through notices of meetings are sent, including the extension or shortening of corporate term, increase or decrease of capital stock, and sale or other disposition of assets. Notably, shareholders may vote through any forms of remote communication such as videoconferencing or teleconferencing using available systems and computer applications or even in absentia. Voting in absentia may be done using any electronic voting platform that may be established. Similarly, directors can remotely participate in meetings, provided they are given reasonable opportunities to participate. In corporations vested with public interest, stockholders entitled to elect directors may do so either in absentia or remotely, even without specific provisions in the By-Laws authorizing such voting. THE FUTURE OF THE BUSINESS LANDSCAPE Aside from the ease of doing business, the RCC seeks to address various reform clusters, such as prioritizing corporate and stockholder protection, instilling corporate and civic responsibility, and strengthening the country’s policy and regulatory corporate framework. As the law is new and regulations have yet to be fully formulated, the role of the SEC will be crucial in its proper implementation. The SEC has already informed registered companies that it will come up with piecemeal rules implementing the provisions of the RCC in lieu of consolidated guidelines. The passage of the law brings much optimism and rightfully so. However, only time can tell how the RCC will be able to transform the business landscape in the short term and the whole economy in the years to come. This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinion expressed above are those of the author and do not necessarily represent the views of SGV & Co. Cecille S. Visto is a Tax Senior Director of SGV & Co.

27 August 2019

Cecille S. Visto

Redefining corporate rules Part 1

First of two parts For nearly 40 years, Batas Pambansa 68 or the old Corporation Code governed the way corporations operate in the Philippines. While the Code has been interpreted by jurisprudence and has been complemented by the Securities Regulations Code (SRC), the Revised Code of Corporate Governance, and the Foreign Investments Act, among others, it has taken nearly four decades to overhaul its provisions. In a recent study by the World Bank on the ease of doing business across 190 countries, the Philippines ranked 124th, lagging way behind its Southeast Asian neighbors like Malaysia (15th), Thailand (27th), and Vietnam (69th). In the 2019 World Competitiveness Report of the Swiss-based International Institute for Management Development (IMD), the Philippines ranked 46th out of 63 economies. While it improved its standing from 50th in 2018, the Philippines still ranked 13th out of 14 countries in the Asia Pacific Region alone, beating only Mongolia. Republic Act (RA) 112321 or the Revised Corporation Code of the Philippines (RCC), signed into law by President Rodrigo R. Duterte on Feb. 20, has redefined the corporate rules to promote ease of doing business, foster flexibility, and take full advantage of technological innovation. This article will discuss the key provisions, which are either new or are amendments to the old Corporation Code, making RA 112321 relevant, timely and more in step with the changing global business landscape. RELAXING THE MINIMUM NUMBER OF INCORPORATORS, RESIDENCY RULES In the past, one of the main concerns of foreign investors in establishing a local subsidiary was the difficulty in complying with incorporator-related requirements under the old Corporation Code. Prior to the RCC, the minimum requirements for incorporation included the participation of at least five incorporators, all of whom are natural persons. These requirements appeared simple, but often proved difficult for a foreign investor who did not have the ready support of another incorporator, let alone four others. Another concern was the need for majority of these incorporators, along with the directors, to be residents of the Philippines. In SEC-OGC Opinion No. 04-18 dated March 19, 2018, the Securities and Exchange Commission (SEC) said the residency requirement, particularly for directors, is mainly for the protection of stockholders “against inactivity of the board where no quorum can be mustered due to repeated absence of a director who resides abroad.” Legislators, however, recognized that with advances in technology, foreign investors and multinational companies can continue to conduct their business in the Philippines even if they are not physically present all the time. Aside from natural persons, a partnership, association, corporation, trust or estate are now allowed in the RCC to act an as incorporator, subject to the compliance with certain requirements, including the approval of their respective boards or members to invest in the corporation. INTRODUCTION OF THE ONE-PERSON CORPORATION (OPC) With the relaxed minimum number of incorporators, it follows that the RCC allows the formation of an OPC, which is a corporation with a sole stockholder having a legal personality separate and distinct from that of such sole stockholder. The SEC issued the guidelines for incorporation of OPCs and began accepting applications on May 6. It approved the first OPC application a day after. OPCs are only required to submit Articles of Incorporation (AOI) but can forego the standard submission of the By-Laws. The OPC is a welcome development, particularly for entrepreneurs without business partners but who would like to set up an entity. Even a foreign natural person may put up an OPC, subject to the applicable capital requirements, as well as the constitutional and statutory restrictions on foreign participation in certain investment areas or activities. As to liability, the sole stockholder in an OPC can claim limited liability, provided he is able to prove that the corporation is adequately financed. Otherwise, the stockholder becomes jointly and severally liable with the OPC for the latter’s debts and other liabilities. Moreover, if the sole stockholder serves as the corporation’s concurrent treasurer, he is required to post a bond of at least P1 million. The rule on the “piercing of the corporate veil,” which holds a corporation’s shareholders personally liable for the corporation’s actions or debt in lieu of limited liability, is applied with equal force to an OPC as with other corporations. An ordinary stock corporation may apply for conversion to OPC when a single stockholder acquires all the stock of such a corporation, with the OPC succeeding the ordinary stock corporation in the outstanding liabilities as of the date of conversion. Conversely, the OPC may also be converted into a stock corporation after compliance with the requirements provided by law. In next week’s article, we will continue the discussion on the changes brought by the RCC, looking closely at three other important provisions, namely the corporate term, the use of arbitration and guidelines on appointing an emergency board, and the more effective use of technology to comply with regulatory requirements. This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinion expressed above are those of the author and do not necessarily represent the views of SGV & Co. Cecille S. Visto is a Senior Tax Director of SGV & Co.

15 August 2019

Evert De Bock

Project management in the transformative age

New platforms and drivers of productivity are creating new possibilities at unprecedented speeds, with steady advances in robotics, cognitive technologies and intelligent automation. To remain relevant and competitive, businesses are looking to implement digital strategies to keep up with the speed of change. However, while disruption has become the new buzzword to reflect the new trends challenging traditional business paradigms, the truth is that the fundamental changes in business models across industries convey a deeper shift that can be better described as “transformative” instead of disruptive. One of the defining traits of the transformative age besides the speed of change is the increasing dependence on connectivity. As Norman Lonergan, EY Global Vice Chair of Advisory puts it, “the transformative age goes beyond mere disruption, and is instead about being connected, whether to interfaces, data, experiences, or people.” Local businesses are already being recognized for using digital technologies that have transformed the market and for leadership in their digital transformation efforts, such as through the International Data Corp. (IDC) Digital Transformation Awards. Efforts are being taken to address the technological needs of many organizations and future-proof various businesses ranging from real estate, hospitality, restaurants, and infrastructure. A Microsoft/IDC Asia Pacific white paper, ‘Unlocking the Economic Impact of Digital Transformation in Asia Pacific,’ predicts that by 2021, digital transformation will add an estimated $8 billion to the Philippines’ GDP and increase its annual growth rate by 0.4%. CHALLENGES OF DIGITAL TRANSFORMATION To successfully lead their organizations through digital transformation, leaders will need to be well-versed in all aspects of the business environment, have the foresight to anticipate change, and integrate the disparate parts of a company. It’s certainly no easy feat. While 80% of organizations are undergoing digital transformations, only 25% of digital transformation projects result in real benefits. This is according to the Project Management Institute (PMI), a leading non-profit professional association. Since ownership of digital efforts should cut across the C-Suite and the different groups within a company, company leaders, IT, and project managers must all partner for optimum results while maintaining a broad view of the organization. Digital transformation projects can be especially challenging for global organizations or financial services companies. These often have legacy technology, third-party partners that contribute to the company’s complexity, and ingrained ways of conducting business. While smaller, digital-oriented startups merely have to execute their digital strategy, larger companies will need to take extensive current operations through digital transformation. Some of the challenges that arise due to the nature of transformation projects are resource allocation and priority in staff selection when weighed against ongoing operations. Another one is the impact of the transformation on the organization’s people, of whom many will be participants in the transformation effort. Transformation projects may result in changes to an organization’s structure, business processes, workplace location, or workforce, which, in turn, may trigger a natural human tendency to resist change. Addressing this human side of change is a key factor in ensuring that the results of any transformation project will endure. Further challenge comes from the scale of transformation projects, with diverse stakeholders both internal and external that will have varied, and sometimes, competing interests. STRATEGIES FOR SUCCESSFUL TRANSFORMATION These challenges can be addressed through the principles used to manage a transformation journey. By choosing the approach that best addresses the needs of the project, organizations will help minimize risks, control costs, and increase value. Murat Bicak, PMI senior vice president of strategy, shares the following strategies for successful digital transformation. Set clear goals and ROI metrics. There are several organizations that may still be confused about what it means to transform into digital. The effort encompasses more than the IT organization, and involves more than just digitization, according to Bicak. It is more about the business-wide use of emerging digital technologies to transform business processes and bring more value to both stakeholders and customers. Ensure that C-Suite sponsors are actively involved in projects. Inadequate sponsor support is one of the leading causes of project failure, according to the PMI. Conversely, the most common reason that transformative strategies succeed is strong support and buy-in from leadership. Executives can be more effective by staying connected with the program, helping navigate challenges, communicating its role, and advocating the program. Elevate the role of the project manager. The project manager role is evolving from that of an operational role to a strategy delivery role. Project managers are expected to bring forward expertise on innovation, strategy, and communication. Bicak adds that technical skills are only part of what project managers will need to lead digital transformation efforts, along with strategic business management and leadership. The essence of project management is the application of knowledge, skills, tools, and techniques to project activities in order to meet project requirements. It can be said that the rigor, discipline, standardized methodologies, and common language for complex change initiatives from project management can help increase the odds of success when applied to digital transformation. Investing in project management professionals by providing them with the tools, training, and skills they need to make their organizations as effective as possible will be key to driving the value delivery mindset needed for a successful project. This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinion expressed above are those of the authors and do not necessarily represent the views of SGV & Co. Evert De Bock is an Advisory Principal from SGV & Co.

29 July 2019

Stephanie G. Vicente-Nava

Benchmarking Philippine VAT against global key trends

In 2017, EY launched a Worldwide Indirect Tax Developments Map. It is a tool designed to track changes occurring around the world in value added tax (VAT), goods and services tax (GST) and other sales taxes, global trade, excise and other indirect taxes. Initially, the team gathered 400 records for VAT/GST and sales taxes from across the globe and noted an average of 30 to 40 changes per month. Based on these developments, five key VAT trends for succeeding years were identified: Trend 1: The standard VAT/GST rates have peaked Trend 2: Reduced rates and exemptions are instruments of tax policy Trend 3: The worldwide spread of VAT/GST continues Trend 4: Digital tax measures continue to spread and Trend 5: Tax administrations are embracing technology Given this global backdrop, is the current Philippine VAT setting aligned with the key trends and developments? Let us now look at how the Philippines fares in terms of global VAT trends. The Philippine VAT rate is stable at 12% According to the EY article, VAT/GST rates increased in many jurisdictions after the global financial crisis in 2008. However, the upward trend eventually subsided as the global economy stabilized. Subsequently, only a few countries increased their VAT/GST rates. Some countries postponed their plans to increase rates, while countries such as Croatia, Ecuador and Switzerland reduced VAT/GST rates. In the Philippines, the VAT rate has remained constant at 12% since 2006. VAT is based on the gross selling price in the case of sale of taxable goods, or gross receipts from the sale of taxable services, except on transactions subject to zero rate (generally export and export-related activities). However, while the rate is stable, it is still regarded as high compared to the average VAT/GST rate in the region. There have been several moves proposing a reduction in the VAT rate, which includes Senate Bill No. 1671 filed early 2018 seeking to cut the rate to 10%. However, the Department of Finance (DoF) reported that the Philippine government needs significant funds until 2022 to build and construct necessary infrastructure nationwide and consequently, any move to reduce tax rates may face strong challenges from the executive department. TAX REFORM LAW BROADENS THE VAT BASE Another global trend observed, as economies continue to improve, is that a number of countries are starting to introduce exemptions for specific goods and services that were previously subject to VAT/GST as a matter of tax policy. The Tax Reform for Acceleration and Inclusion (TRAIN) Act or RA No. 10963, the initial package of the Comprehensive Tax Reform Program (CTRP), took effect in 2018. One of the law’s main objectives is to raise the revenue needed to fund the government’s infrastructure programs by restricting VAT exemptions. Accordingly, 54 out of 61 special laws with non-essential VAT exemptions have been repealed and the law identified certain transactions previously subject to 0% VAT and imposed the 12% VAT on them upon establishing and implementing an enhanced VAT refund system. Offhand, these local VAT provisions appear contradictory to the global trend. However, the same TRAIN Act retained and provided additional VAT exemptions on certain transactions as a matter of policy, which is consistent with global VAT trends. The VAT threshold increased from P1.9 million to P3 million. This effectively exempts from VAT the sale of goods and services of marginal establishments. According to the DoF, the exemption is provided to protect poor, low-income Filipinos and small and micro businesses, as well as to promote manageable administration. Additional exemptions under the TRAIN Act include: • The sale or lease of goods and services to senior citizens and persons with disabilities, as provided under RA Nos. 9994 (Expanded Senior Citizens Act of 2010) and 10754 (An Act Expanding the Benefits and Privileges of Persons with Disability), respectively. • Transfer of property pursuant to Section 40(C)(2) of the Tax Code, as amended, or tax-free exchange transactions. • Association dues, membership fees, and other assessments and charges collected on a purely reimbursement basis by homeowners’ associations and condominium corporations established under RA Nos. 9904 (Magna Carta for Homeowners and Homeowners’ Association) and 4726 (The Condominium Act), respectively. • Sale of gold to the Bangko Sentral ng Pilipinas (BSP). • Sale of drugs and medicines prescribed for diabetes, high cholesterol, and hypertension. This global key trend appears harmful and contradictory to the current policy of the government to simplify the VAT system in the Philippines. Perhaps the Philippines learned its lessons from the past that providing reduced VAT rates and exemptions for particular industries as a matter of tax policy leads to multiple VAT rates which complicates the system and increases the risk of errors in the application of VAT rates and disputes with taxpayers. INTRODUCTION OF E-INVOICING AND E-SALES Tax administrations are now embracing the digital revolution to administer indirect taxes more effectively. Most authorities now require the electronic submission of VAT/GST declarations, and many are mandating the use of electronic invoicing. The Philippines has been aligned with this global trend for several years now. Certain taxpayer groups have been mandated to use the electronic filing and payment system (EFPS), as well as the eBIRForms return preparation software and online filing facility. Covered taxpayers are also required to submit their Summary Lists of Sales, Purchases and Importations, as well as periodic alphabetical lists (or “alphalists”) of payees subjected to withholding taxes — periodic, summary-type data that is analyzed by the BIR through the Reconciliation of Listings for Enforcement (or RELIEF) Validation System. In addition, the TRAIN Act introduced e-Invoicing and e-Sales reporting requirements, which present significant advancements in terms of digitalizing tax administration. Under the law, large taxpayers and exporters are required, within the next five years, to electronically issue their invoices/receipts, as well as to report their sales data to the tax authorities at the point of sale. Upon implementation of this provision, tax authorities will be able to capture more valuable, transactional-level tax Big Data in real time. This will also allow them to perform complex analytics, improve the selection of taxpayers for audit, rationalize tax findings, and streamline tax examinations. Therefore taxpayers should prepare for this move toward the digitalization of invoicing and sales as this reporting requirement may change the way their business operates. Modifying longstanding business processes for new systems will not only involve significant capital investment but will also entail a change in the organizations culture to ensure that the new system or process is accepted and properly adopted. Taxpayers should also be able to match the pace of the tax authorities in responding to inquiries during a tax audit to ensure compliance with the law and avoid administrative penalties and interests. With the advent of the digital age, tax authorities increase the pace of development and implementation of tax measures by leveraging on the interconnected global tax environment. Taxpayers must be vigilant to learn about emerging tax trends and developments in order to be able to design policies and adopt processes to sufficiently address changes in indirect tax policies, ensuring compliance with the law and capitalizing on their benefits. This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinion expressed above are those of the authors and do not necessarily represent the views of SGV & Co. Stephanie G. Vicente-Nava is a Partner from SGV & Co.

22 July 2019

Leslie Anne G. Huang

Alternative credit scoring through mobile phone data

Traditionally, credit is extended to customers based on a credit score. Lenders such as banks, credit card companies and other financial institutions assess creditworthiness using information from credit bureaus and their own databases. The traditional credit-scoring process usually verifies customers’ identity and assesses their ability and willingness to pay. The ability to pay is based on current income and outstanding debt, and willingness to pay is based on past credit performance. In emerging economies such as the Philippines, the traditional credit-scoring process can be a barrier to accessing credit, especially for the lower-income segment. Their ability to pay is a challenge to establish because many of them do not have regular fixed wages. Instead, they are often self-employed or engaged in different income-earning activities that do not have consistent cash inflows. They are usually paid in cash, with little to no formal savings accounts or registered assets that can be used as collateral. Similarly, their willingness to pay is also difficult to assess because they do not have records of past credit performance and borrowing behavior. Their segment is the so-called unbanked — people who are not served by a bank or a similar financial institution. The traditional credit-scoring process creates a cycle that can be limiting to the lower-income segment. They lack financial records to establish creditworthiness caused by little to no opportunity to secure credit or access to other financial tools necessary to secure a loan or save money. Ironically, for them, access to credit is especially critical. It can provide them with the instrumental opportunity to get an education, start a livelihood, or purchase a house. Without loan grants, they end up relying on informal and costlier alternatives. According to the Bangko Sentral ng Pilipinas third quarter 2018 Financial Inclusion Survey, only 3% of adults with outstanding loans actually borrowed from a bank, while 39% borrowed from informal sources. From the lenders’ point of view, expanding the coverage of possible borrowers can be a growth area. To reach the unbanked and underbanked, financial technology (Fintech) companies are now developing approaches to credit-scoring by looking beyond the traditional credit bureau databases and using other available sources of information. One of the more promising data sources is mobile phones. Mobile phones are available, accessible and replete with valuable information that can be used for credit-scoring. This is particularly true in the Philippines as in 2017, the International Telecommunications Union identified the country as having 110.4 mobile-cellular telephone subscriptions for every 100 people. In fact, the National Telecommunications Commission (NTC) identified a total of 120 million users and 96% of them are prepaid subscribers. Mobile phone usage is presumed to be a good indicator of the user’s lifestyle and economic activity. Simple inputs such as the way users organize their contacts (e.g., first name and last name) and structure their text messages (i.e., grammar and punctuation) can be used as data points in the credit-scoring model. More complex data points include analyses of location movements and call detail records, among others. Mobile phone data also shows location movements, which can be used to infer the users’ frequent locations, such as their home and their workplace. Location movements also provide insight on employment, modes of transportation and frequency of travel. Call detail records connecting individuals who contact each other result in social networks that can be indicative of age, gender, economic status and geography. These records can additionally be used to infer a user’s socioeconomic class due to homophily, or the individual’s strong tendency to associate with others whom they perceive as like themselves in some way. This is actually the same concept that one of Facebook’s patents anchors upon. The United States Patent and Trademark Office granted Facebook a patent on technology that determines users’ creditworthiness based on their social network connections — where after taking the average credit rating of the user’s social network into consideration, a lender can either proceed with or reject a loan application. While the long-term predictive power of using mobile phone data for credit-scoring remains to be seen, it promises to be an alternative or complement to an existing process that is worth exploring. A person’s digital footprint is difficult to manipulate, although not impossible, and provides a more holistic view of the customer’s socioeconomic activity compared to traditional credit reports. It makes the credit-scoring and risk-profiling processes simpler and faster through the input of the customer’s mobile phone number, where results can be generated in a matter of seconds. For lenders, embracing credit-scoring alternatives can boost profits. Reaching more customers can increase revenue and new technologies can reduce costs in the long run. Valuable insights from these alternative data sources can also enable cross and up-selling of products. However, crucial to alternative credit-scoring are data privacy and banking regulations which influence how Fintech companies and creditors obtain, analyze and use information. Prior to implementation, the process must be configured to applicable laws and regulations to ensure compliance. Part of the considerations would be ensuring that customers provide consent and authorization to creditors and Fintech companies in obtaining data on mobile usage from telecommunications companies. Mobile phones are both convenient and accessible. Customers may not have credit history, but they have mobile phone records. Converting data from digital footprints to financial track records and creating meaningful credit insights out of them can be a powerful tool. It provides opportunities to lenders to offer the right products according to the customer’s needs, enable them to make good financial decisions, provide access to credit to a larger segment of the population, and move toward an inclusive financial system that meets the needs of all income levels. This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinion expressed above are those of the authors and do not necessarily represent the views of SGV & Co. Leslie Anne G. Huang is a Senior Manager from the Financial Services Organization of SGV & Co.

15 July 2019

Elena D. Manuel

Final call for applications: SSS condonation program

The new Charter of the Social Security System (SSS) took effect on March 5 with the passage into law of Republic Act (RA) No. 11199 or the “Social Security Act of 2018.” The law aims to strengthen the state pension fund through the introduction of a new monthly contribution rate of 12% (with gradual increases up to 15% by 2025), the setting of minimum and maximum monthly salary credits, and the expansion and mandatory coverage of the fund for certain individuals, i.e., self-employed persons and OFWs, among others. More importantly, the law introduces a condonation program, which allows employers with delinquent SSS contributions to settle their delinquencies without the imposition of penalties. Following the passage of the SSS Charter, the Social Security Commission (SSC) issued Circular No. 2019-004, which implements the Transitory Clause of RA No. 11199, granting a six-month period for qualified employers or covered persons to settle their delinquencies and apply for a condonation of penalties. In general, the penalties offered to be waived under the program are the 3% penalty (2% beginning April 2019) per month, possible initiation of litigation, and damages, among others. Notably, the offer period for the condonation is set to end on Sept. 6 (after its commencement on March 5). Given that the window closes in less than two months, it now becomes worthwhile for employers to check on possible delinquencies that would call for an application for condonation. To an employer, questions like “am I or my employees covered by the requirement to contribute?,” “are there any missed contributions for covered employees?” would need some answers before a decision can be made. Here are some points to consider. Basically, all employers, acting on behalf of covered employees, are required to withhold and remit monthly employer-employee contributions to a Social Security authorized agent or bank — and any employer or covered person who has not remitted all contributions due and payable to the SSS may avail of the Program. Under the law, the types of employees covered include contractual or permanent employees not more than 60 years old, regardless of citizenship or nationality, the nature and duration of employment, and the manner of payment of compensation. Even foreign nationals or expatriates under a local employment contract are considered covered “employees” in the absence of an explicit exemption under bilateral agreements. While the Philippines has Bilateral Social Security Agreements with 13 countries possibly providing exemptions from the mandatory coverage, the exemption is, however, not automatic. To be exempt, there needs to be a submission of a Certificate of Continuing Liability from the employees’ home country Social Security Office and approval of the Philippine SSS. Other than the said general coverage, the following employers or covered persons are specifically included in the list of those who may apply for condonation: – Those not yet registered with the SSS, including household employers; – Those with pending or approved proposals under the existing Installment Payment Scheme Program of the SSS; – Those with pending or approved applications under the SSS Program for the Acceptance of Properties Offered Through Dacion En Pago; – Those with pending cases involving the collection of contributions and/or penalties or non-reporting of employees before the SSC, the regular Courts or the Department of Justice or Office of the Prosecutor; – Those against whom judgment had been rendered either by the SSC or the regular Courts but have not complied with the judgment; – Those who settled all contributions before the effectivity of RA No. 11199 but with unpaid or partially paid penalties for late or non-remittance; and – Those against whom a Warrant of Distraint/Levy/Garnishment (WDLG) or Encumbrance had been issued. The program also extends the entitlement to a condonation to those who have already paid contributions, partially or in full, before the effectivity of RA No. 11199, but are still faced with accrued penalties. Now that the condonation program is about to close on Sept. 6, the SSS is making a final call on all employers to revisit their compliance and settle all past due SSS contributions, if any, without the pain of penalties. This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinion expressed above are those of the authors and do not necessarily represent the views of SGV & Co. Elena D. Manuel is a Tax Senior Director of SGV & Co.

08 July 2019

Ramil C. Cantoneros

The essence of digital trends

We continue to see how technology disrupts traditional business models, resulting in new trends, products, and services, as well as how it dramatically transforms customer behaviors. Technology and innovation are considered great enablers, with the potential to rapidly remake the way we live, work and play. Yet, nearly all of today’s greatest disruptions have one common element — at their very core, these innovations are again empowering people. Centuries ago, business transactions happened between individuals. Consumers and vendors had control and flexibility to transact within their limited geographically-based market, as in a village. Contrast this with the industrial revolution. Power shifted to the hands of companies with the technology, machines and infrastructure to operate mass production facilities. Fast forward to the present — the digital revolution returns the power to ordinary consumers and vendors through an unprecedented level of control and flexibility, direct peer-to-peer transactions, and a wealth of information and content to empower their own lives at a personal level within a vast global arena. SOME COMMON ATTRIBUTES OF DIGITAL TECHNOLOGY Most people grew up in a culture with pre-defined norms, e.g. one works eight hours, earns a wage, and spends these wages at a physical store operated by a business or company. However, this was one of the first paradigms to go out the window with the rise of technological platforms that now provide an incredible level of control and flexibility to people over the use of their time, assets, resources, and the work and services they provide. Take the sharing economy, where digital platforms facilitate the exchange of goods and services among peers, allowing those in a network to transact directly with each other at the time and engagement level of their own choosing. Online platforms have made it much easier for those who wish to monetize their assets, time or skills at their own convenience. This has also led to the rise of the gig economy, where freelancers can work and earn on their own terms on a project basis. Consumers can cater to each other in this peer-to-peer setup, developing reputations that can be defined by reviews provided by fellow consumers to reward high performers. Blockchain, the technology behind cryptocurrencies, is commonly described as a tamper-proof digital record that can securely exchange and track assets on an end-to-end process. Blockchain is another example of peer-to-peer setups among users. Due to their ability to facilitate transactions on a secure platform, blockchains have the potential to displace intermediaries, allowing consumers and vendors to independently transact with each other online without a third-party to facilitate payment. Online shopping also allows consumers the privilege of purchasing goods any time by almost completely automating the sales process. Research by Gartner in their Customer Experience Summit 2018 predicts that by 2020, 25% of customer service operations will integrate chatbot technology or virtual customer assistants (VCA) into their channels, automating self-service while still providing the ability to escalate complex situations to a human agent. Information dissemination, or how easily an individual can share information, is best seen in the context of social media. This technology empowers an individual with the ability to create, publish, and share information on public platforms any time a connection is provided. Dissemination is no longer confined to small groups with access to broadcast media. The connectivity of these platforms is further enabled by mobile devices, allowing anyone to create and share content, amplifying their voices to anybody who would want to listen. Some creators take this ability a step further and make a name for themselves in social spaces, giving rise to viral popularity. While many talents have been brought to light from obscurity thanks to these platforms, their brands’ resulting products and services are more easily provided at a flexible pace they can dictate for themselves. Another aspect worth considering is how technology and disruption elevate the capability and potential of today’s workforce. With automation and artificial intelligence set to replace repetitive jobs (such as data entry, assembly line manufacturing and cashier sales), technology is giving room for the individual to develop new skills and competencies. Carl Frey and Michael Osborne in the 2017 study The Future of Employment: How Susceptible are Jobs to Computerization predict that 47% of existing jobs in the US will be at high risk of automation in the future. This gives the employees previously holding these jobs the incentive to pursue their passions or engage in creative, imaginative and strategic work. Though automation rendered and will continue to render certain jobs obsolete, history shows us that it also introduces new forms of employment. THE INFORMED, EMPOWERED CONSUMER Modern consumers are better equipped to consume greater amounts of data to make informed decisions. These decisions are often disseminated through social media, which in turn, can potentially influence fellow consumers. This level of awareness raises the standards consumers apply to their customer experience, resulting in a demand for personalization in a company’s marketing efforts. According to Anjali Lai, lead author of 2016 report Forrester’s Empower Customer Segmentation in Asia Pacific, “The power has shifted from the business to the customer. Consumers have rising demands and a new understanding of speed, the brand relationship and personalization, and these new levels of expectation and standards of customer experience have upended traditional business models.” This poses the question of how companies can adapt to meet the demands and expectations of modern consumers. INDUSTRY OPPORTUNITIES In the digital age where change is constant and innovation is key, companies who respond fastest gain the most traction. To remain competitive and relevant in the market, companies need to reinvent themselves by maximizing the opportunities that emerging technologies bring. To begin transforming a traditional business model and adapting to technological disruptions, companies can start by asking themselves four important questions: Who is their customer? What experiences are important to their customers? How can their business model support these experiences? What digital tools can enable their business model? While today’s consumers are empowered by technology, companies will find that adopting and properly utilizing digital tools will help them improve the overall customer experience. Digital technology also allows them to relate data to customers on a micro level, providing more resources than ever to aid in their anticipation of the customer’s needs. According to the EY Megatrends report, delivering rich customer experiences has the potential to generate more income and improve profit margins. Companies will have more to gain from listening to customers and tailoring their services to their needs. By leveraging digital platforms, adding value, providing a more personal and engaging customer experience, and creating a seamless balance of automated and personal touch points, companies have the opportunity to turn consumers into loyal stakeholders, and potentially, even into voluntary endorsers on social media and other platforms. As we said at the beginning of this article, digital technology and platforms are once again empowering customers and individuals. Companies need to understand that while innovation will clearly be a key driver of future competitiveness, the ability to more closely engage today’s empowered customers by providing fresh, dynamic and bespoke experiences may prove to be the greater challenge. This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinion expressed above are those of the authors and do not necessarily represent the views of SGV & Co. Ramil C. Cantoneros is a Senior Manager in the Advisory Services of SGV & Co.

01 July 2019

Joyce A. Francisco

SEC finalizes rules on material RPT for listed firms

In line with efforts to better protect minority investors and improve corporate governance, the Securities and Exchange Commission (SEC) now requires Publicly-Listed Companies (PLCs) to disclose dealings with their related parties. SEC Memorandum Circular No. 10 provides the rules on reporting material related party transactions (RPT) and the minimum requirements in drafting the RPT policies of PLCs. All PLCs are mandated to comply with the rules when they enter into material RPTs, which are transactions with related parties amounting to 10% or more of the company’s total assets based on its latest audited financial statements. Related parties cover “the reporting PLC’s directors, officers, substantial shareholders and their spouses and relatives within the fourth civil degree of consanguinity or affinity, legitimate or common-law” having control and significant influence over the PLC. It also may pertain to “the reporting PLC’s parent, subsidiary, fellow subsidiary, associate, affiliate, joint venture or an entity that is controlled, jointly controlled or significantly influenced or managed by a person who is a related party.” The Circular defines RPTs as “transfer of resources, services or obligations between a reporting PLC and a related party, regardless of whether a price is charged.” The term also includes outstanding transactions entered with an unrelated party that subsequently becomes a related party. The SEC also requires PLCs to adopt and submit a group-wide Material RPT Policy within six months from the effectivity of the Circular (which was on April 27, 2019) for existing PLCs and within six months from listing date for those listed after the effectivity. The Material RPT Policy will, at a minimum, include guidelines on the identification of related parties, coverage of material RPT policy, materiality thresholds, identification and prevention or management of potential or actual conflicts of interest which may arise out of or in connection with material RPTs, ensuring arm’s length terms, approval of material RPTs, self-assessment and periodic review of policy, disclosure requirement of material RPTs, whistleblowing mechanisms, and remedies for abusive material RPTs. Moving forward, PLCs must also file an Advisement Report on any material RPT within three calendar days after the transaction. At a minimum, such disclosures should include the complete name of the related party, relationship of the parties, execution date, the financial or non-financial interest of the related parties, type and nature of transaction as well as description of assets involved, total assets, amount or contract price, percentage of the contract price to the total assets of the reporting PLC, carrying amount of collateral (if any), terms and conditions, rationale for entering into the transaction, and the approval obtained. Further, a summary of material RPTs entered into during the reporting year should be disclosed in the company’s Integrated Annual Corporate Governance Report (I-ACGR). The board of directors is responsible for ensuring that transactions with related parties are handled in a sound and prudent manner, with integrity and in compliance with applicable laws and regulations to protect the interest of the company’s shareholders and other stakeholders. Hence, a director or officer of a corporation shall be disqualified from serving as such in another corporation if he or she is found to have facilitated abusive material RPTs based on a final judgment by a court. To clarify, abusive material RPTs are those that are not entered at arm’s length and unduly favor a related party. To prevent this, the PLC’s Material RPT Policy shall have clear guidelines in ensuring the arm’s length nature of the transaction. The Board of Directors shall appoint an external independent party to evaluate the fairness of the terms of the material RPT before its execution. The policy shall also include guidance for an effective price discovery mechanism to ensure that transactions are engaged into at terms that promote the best interest of the company and its shareholders. The Circular also provides penalties for other violations of these rules. Non/late filing of or incomplete/incorrect signatures in the Material RPT Policy will result in the imposition of a basic penalty amounting to P10,000 and a monthly penalty of P1,000 which will accrue until the policy is submitted to the SEC. The SEC also imposes fines of up to P40,000, in addition to a daily penalty of up to P400, for non/late filing of Advisement Reports and a fine up to P20,000, in addition to a daily penalty of up to P400, for incomplete/incorrect Report. This is a serious requirement that should be addressed as early as possible, because a fourth offense for the same violation will constitute grounds for suspension or revocation of the company’s registration or secondary license. Questions now arise on the scope of the transactions covered by the rules. It should be noted that the Bureau of Internal Revenue (BIR) also issued transfer pricing (TP) regulations, which provide guidelines in determining the appropriate revenues and taxable income of parties involved in related party transactions by prescribing the “arm’s length principle” as the standard to determine transfer prices of related parties. Hence, only those related party transactions with an impact on revenues and taxable income are covered by the BIR TP rules. The SEC Circular, however, seems to be broader when regarding the nature of the covered transactions given that it encompasses all transfers of resources, services or obligations between a reporting PLC and a related party. But when talking about the value of the transaction, the SEC Circular limits the coverage to transactions with related parties amounting to 10% or higher of the company’s total assets, while there is no such threshold under the BIR TP rules. The SEC also has yet to clarify the standards to determine the arm’s length nature of the material RPTs. While the Circular requires that the material RPT policy shall have clear guidelines in ensuring the arm’s length terms, there is no established definition for what is considered arm’s length. It would seem that the SEC equates the same to “fairness” as the Circular also requires the appointment of an external independent party to evaluate the fairness of the terms of the material RPT. We note again that the BIR TP regulations prescribe the methods for determining arm’s length price for related party transactions. The regulations, which apply to both cross-border and domestic transactions of associated enterprises, are largely based on the arm’s length methodologies set under the Organization for Economic Cooperation and Development (OECD) Transfer Pricing Guidelines. It thus remains to be seen whether BIR methodologies may be adopted in determining the arm’s length nature of the material RPTs to comply with SEC rules. There are also concerns on the disclosures required in the Advisement Report. Although the Circular provides the minimum information that must be included in the report, issues on the completeness and correctness of the information contained therein may still arise. Thus, PLCs should be circumspect in preparing the Advisement Report as even an incomplete or incorrect report warrants a penalty. It behooves the SEC to provide more guidance on the rules given the penalties that may be imposed on PLCs for noncompliance. While some may feel that these new guidelines add more onerous reporting requirements, we should understand the underlying intent to protect the corporate sector, the securities, the capital market participants, the securities and investment instruments market, and the investing public from transactions detrimental to and practices inconsistent with business development. Despite much work still needed to be done to improve our country’s ranking, the SEC is optimistic that the new rules will help improve the Philippines’ performance in the World Bank Group’s Ease of Doing Business survey, especially in the indicator for Protecting Minority Investors. The Philippines improved to 132nd out of 190 economies in terms of protecting minority investors in the Doing Business 2019 report from 146th in the preceding report, even as its overall rank dropped 11 spots to 124th from 113th between years. This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinion expressed above are those of the authors and do not necessarily represent the views of SGV & Co. Joyce A. Francisco is a Tax Senior Director of SGV & Co.

25 June 2019

Wilson P. Tan

Digital transformation for SMEs

Established in 2015, the ASEAN Economic Community promotes the significant growth and potential of the region’s emerging economies. Key drivers of emerging economies are small and medium enterprises (SMEs). However, with rapid digitalization occurring across almost all business sectors, ASEAN SMEs are increasingly looking to transform their enterprises. SMEs are considering tapping into digital trends to further grow and strengthen their competitive edge as well as making use of emerging technologies to maintain their profitability. This article focuses on selected insights from EY’s latest survey, Redesigning for the digital economy, which covers SMEs from the six largest ASEAN markets of Indonesia, Malaysia, Singapore, Thailand and the Philippines. Respondents are from 370 ASEAN mid-market organizations with annual global revenues of between $20 million to $500 million. These collective insights help us understand their strategic priorities, approaches to digital transformation, and application of transformative technologies. In general, the survey reports that transformative technology is increasingly viable, facilitating SMEs to adopt a digital-first mindset. Investments in technologies such as artificial intelligence, machine learning, and robotic process automation present attractive benefits that can help manage costs, reduce risks, deliver personalized customer service, and create next-generation products and services that are more focused on the digital age. However, digitalization also presents a challenge. It is as much a game changer as it is a massive undertaking, since SMEs will need to take a long-term view of their resource investments, and may find the need to depart from traditional models to reboot themselves. DRIVERS OF TRANSFORMATION Many SMEs are determined to forge ahead with digital transformation strategies to gain an edge over their competition, and the EY survey identifies four of the forces that spur on digital investments to ensure they stay ahead. Service quality. Customers today have higher service expectations, especially with younger, digitally adept accustomed to 24/7 availability. These customers expect service to be rendered faster than ever, pushing companies to elevate their ability to deliver. Applying digital technology would help organizations achieve near real-time fulfillment, provide contextual personalization, and enable increasingly problem-free user experiences. One current method to provide real-time fulfillment is through AI in the form of chatbots. This developing tool automates repetitive individual queries, increasing the chances of conversion. Build connectivity and leverage off ecosystem partners. Regardless of size or industry, SMEs will gain an advantage from collaborating with participants within their broader ecosystem. This provides them with connectivity into the digital network of other businesses, with the added opportunities of co-creating new products, capitalizing on external expertise and collective innovation, and pursuing new markets or customers. Managing operating costs. Meeting high customer expectations requires SMEs to accelerate the digitalization of their business processes. These include labor-intensive back-office processes to reduce paperwork, raise automation, quicken turnaround times and manage front-office expenses critical to reducing the cost to serve or deliver more services and solutions via digital, self-serve channels. For example, as a response to escalating salaries, robotic process automation (RPA) is emerging as a new class of digital labor that can eliminate manual, repetitive processes. Its benefits include cost-saving opportunities from continued enhancements to processes and advancements in robotic tools, higher dependability, and transactions that are more accurate, documentable, and auditable with process automation. Keep pace with competitors. SMEs are facing competitive threats from new companies created in this digital age that can utilize nimbler data instead of slower physical infrastructure. A possible competitor may come in the form of micro enterprises that can negatively impact profitability without needing to be of comparable scale, or new companies that achieve significant scale by leveraging disruptive technologies and posing a challenge within a short amount of time. Another example is small e-retailers with minimal operating overheads that can choose what product segments to sell, severely undercutting the pricing of SME retail companies. To maintain relevance, SMEs need to deliver on new business propositions by stepping up their technological pace. A possible solution is through improved payment applications, with payment technologies enabled by e-commerce and e-wallets that are especially driven in an emerging country like the Philippines with low credit card penetration. Digitalization will impact almost every facet of SMEs. It alters the competitive landscape and performance across industries, creating an urgent imperative for SMEs to transform for growth and competitiveness. High-level steps must be undertaken for SMEs to transform their digital vision into reality, some of which are presented in the survey. STEPS TO DIGITAL SUCCESS The EY Survey further discusses that while digital disruptions in businesses are well-documented, many organizations have achieved limited, genuine successes with digital transformations. Transformation begins with a committed executive-level sponsorship, laying a firm foundation for digital success. Oversight of digital technologies, and the foresight to prioritize these to champion change, paves the way for SMEs to move quickly. The survey notes that 74.2% of respondents felt that, in developing a culture of agile innovation, having supportive senior stakeholders is a prerogative. To begin, a current-state assessment of the organization’s innovation maturity should be made to serve as a benchmark for execution, while a realistic outlook about what the future-state model must be adopted. Nearly 61% of respondents highlight that technical limitations from legacy architectures hinder their digital strategies, requiring a balance between both. Some SMEs might opt for major overhauls, but many could simply decommission applications they find redundant, then recondition remaining systems to reduce complexity and enable them to process quickly when necessary. Cost savings from IT legacy modernizations such as cloud technologies, open APIs, and microservices applications can then be invested to fund a continuous digital strategy. SMEs should not just concentrate efforts within specific areas, and instead focus on end-to-end initiatives. This means extending beyond customer-facing processes and including digital solutions for mid and back-office functions. Further cohesiveness could be improved by horizontally integrating between front, mid and back-offices. It should be noted that while surveyed SMEs intend to focus more on adopting emerging solutions than business-as-usual technologies by FY22, they should also be cautious against pursuing disruptive technology simply for the sake of doing so. Not every component needs to be digitalized, and not every initiative may deliver a satisfactory RoI. To reduce risk, SMEs can incubate digital solutions through prototyping, testing and validating initiatives through experimentation on a smaller scale and keenly monitoring feedback. SMEs are also treading a fine line between balancing digital initiatives and managing data protection and customer privacy safeguards, ensuring that the intent to mitigate new digital risks do not impede innovation. Security risks from cyber threats and vulnerabilities are also challenges that merit attention as breaches can not only result in significant reputational and financial impact, they could also damage consumer confidence in the company. This calls for SMEs to develop integrated risk management, compliance and security protocols as part of an initial digital design phase. ASEAN SMEs are vital contributors to the region’s economy, but their continued economic support depends on their ability to leverage digital solutions to expand efficiently. While transforming into digital powerhouses cannot be expected overnight, the digital environment is rapidly evolving, and SMEs cannot risk being left behind. Digital initiatives that are well-crafted and executed can help SMES today progress in a competitive landscape, further finding potential to become tomorrow’s multinationals. Clearly, while the challenges in transforming digitally are great, the rewards to be reaped are far greater. This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinion expressed above are those of the authors and do not necessarily represent the views of SGV & Co. Wilson P. Tan is the Vice Chairman and Deputy Managing Partner of SGV & Co.

17 June 2019

Karen Mae Calam-Ibañez

VAT refund claims under the TRAIN Law

Taxpayers are sometimes reluctant to file VAT refund claims because it triggers a mandatory VAT audit, not to mention the need to submit voluminous of documents and the uncertainty of when the processing will be completed. Any delay in the processing of a VAT refund claim may cause cash flow problems to the claimant because the input VAT remains unutilized when it could have been invested or used as working capital. The recently enacted TRAIN Law, which aims to make the Philippines a more competitive investment destination, shortened the period within which the BIR is supposed to process VAT refund claims. To implement the amendments introduced by the TRAIN Law, the BIR issued Revenue Memorandum Circular (RMC) No. 47-2019, providing revised guidelines and requirements for VAT refund claims within a 90-day period. The introduction of the 90-day period for applications lodged after the TRAIN Law took effect on Jan. 1, 2019, effectively removing the “deemed denied” provision under RMC No. 54-2014, which clarified the issues on the application for VAT refund under Section 112 of the Tax Code. The standing rule is that the BIR must decide on the claim within 90 days from the filing of the application. If the 90 days lapse without a decision, the review shall continue and will not invalidate the belatedly issued report and findings of the BIR. However, the BIR examiner may be subject to administrative penalties, if warranted. Nevertheless, however noble the intention of the legislature, one cannot discount the possibility that the imposition of sanctions is a two-edged sword. While it may in fact hasten the processing of VAT claims, BIR examiners may also be constrained to just deny the claim in order to comply with the 90-day deadline. Notably, this is not the first issuance of the BIR that seeks to implement the 90-day processing of VAT refund claims. The BIR previously issued RMC No. 17-2018, effectively amending the provisions of RMC Nos. 89-2017 and 54-2014 on the processing of claims for the issuance of a tax refund/tax credit certificate, except for claims processed under the jurisdiction of the Legal Service. CONSULARIZED DOCUMENTS RMC No. 17-2018 has provided the list of requirements to prove the VAT zero-rating of sales of services to non-resident foreign corporations (NRFCs) covered under Sec. 108 (B) (2). The key is to prove that the NRFC-buyer of the services is not doing business in the Philippines, as certified by an authorized official of the NRFC. These requirements were reiterated in RMC No. 47-2019 and are as follows: – Original copy of the certification from the SEC that the NRFC buyer is not a registered corporation in the Philippines; and, – Consularized copy of the certificate of foreign registration/incorporation/association of the NRFC. The BIR acknowledged the inherent difficulty in securing consularized documents. As such, the taxpayer-claimants are required to submit the original copies of the consularized documents on the first claim. The documents will be kept by the processing office on a separate file, a copy of which shall be attached to the docket of succeeding claims with a duly-signed notation by the head of the processing office that the documents are faithful reproductions of the original documents on file. However, this RMC (issued on April 16, 2019) may have been effectively amended by the Apostille Convention, an international treaty drafted by the Hague Conference on Private International Law. The Apostille Convention abolishes the requirement of double verification of foreign public documents by both the originating and receiving country, and simplifies the procedure of authentication. Starting May 14, 2019, public documents executed in 117 Apostille-contracting countries and territories (except for Austria, Finland, Germany and Greece) no longer have to be authenticated by the Philippine Embassy or Consulate General once Apostilled for them to be used in the Philippines. For countries and territories that are not Apostille-contracting parties, the previous process of authentication applies. Since this is a relatively new development, the BIR has yet to issue a clarification on the possible suspension of the consularization requirement for Apostille-contracting parties. OTHER VAT REFUND CLAIM REQUIREMENTS As to the verification requirement of the BIR, RMC No. 16-2019 clarified that the inter-office Request for Certification on Outstanding Tax Liability of Taxpayer and Certification on the Status of Cases Pending Legal or Judicial Resolution, for the specific purpose of satisfying the requirements of claims for VAT refund, shall now be valid for six months. As it is, all concerned revenue offices are ordered to indicate clearly in the Certification to be issued that the Certification validity is six months from the date of issuance. It is a long-standing rule that tax refunds, like tax exemptions, are construed strictly against taxpayer-claimants. Thus, taxpayers should ensure the completeness and authenticity of the documentary requirements upon filing of the application for VAT refund. Failure to submit the complete documents in support of the claim shall result in non-acceptance of the application. Moreover, due to the very limited time for processing the VAT refunds, the BIR clarified under RMC No. 47-2019 that no additional documents shall be subsequently requested from the taxpayer-claimant. Any unsupported claim shall be disallowed outright, in full or in part as the case may be. While there is certainly still much room for improvement in the processing of VAT refund claims, this is a good first step taken by government to help exporters ease their cash flow issues caused by input VAT accumulation. This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinion expressed above are those of the authors and do not necessarily represent the views of SGV & Co. Karen Mae Calam-Ibañez is a Director of Business Tax Services of SGV & Co.