Settle your delinquent taxes NOW!

People had a sigh of relief when the Tax Amnesty Act (RA 11213) was passed.  We then waited with bated breath wondering when the Implementing Rules and Regulations (IRR) would come out.

Last April 8, 2019, we were greeted with good news.  The first IRR finally came out.  BIR's Revenue Regulation No. 4-2019 ("RR"), however, implements only a portion of the Tax Amnesty Act, specifically the settlement of your tax delinquencies.  

Remember that tax amnesty does not mean that you can go scot-free from your delinquencies: it means that the government will take you off the hook if you pay a certain amount and allow yourself to be subjected to various requirements.  This amnesty applies to taxable year 2017 and earlier.

To put a long story short, below is the list of covered tax delinquencies with the rates required to be paid:

A. Delinquent accounts and assessments which have become final and executory - 40% of the basic tax assessed;

B. Tax cases subject of final and executory judgment by the courts - 50% of the basic tax assessed;

C. Pending Criminal Cases filed with the DOJ/Prosecutor's Office or the courts for tax evasion and other criminal cases under Chapter II of Title X and Section 275 of the Tax Code, as amended - 60% of the basic tax assessed; and

D. Withholding agents who withheld taxes but failed to remit to the BIR - 100% of the basic tax assessed, even if the taxes shall fall under letters (A), (B) or (C) above.

Six Things You Need To Know About The New Corporation Code

The country's 38-year old Corporation Code has recently undergone a major facelift.

Last 20 February 2019, the Philippine President signed into law Republic Act No. 11232 (copy available at https://www.officialgazette.gov.ph/downloads/2019/02feb/20190220-RA-11232-RRD.pdf), otherwise known as the "Revised Corporation Code of the Philippines".  The new law expressly repealed and replaced the existing Corporation Code (Batas Pambansa Blg. 68).

As of this writing, the Securities and Exchange Commission (SEC) has not yet issued any Implementing Rules and Regulations for the new law.  But here are six (6) things to watch out for:

1. The minimum 5-natural person requirement to incorporate has been REMOVED.

Section 10 of the law states that, "Any person, partnership, association or corporation, singly or jointly with others but not more than fifteen (15) in number, may organize a corporation for any lawful purpose or purposes..."

By way of contrast, the provision under the old law reads: "Any number of natural persons not less than five (5) but not more than fifteen (15), all of legal age and a majority of whom are residents of the Philippines, may form a private corporation for any lawful purpose or purposes."

The new law has two (2) important consequences: first, the minimum 5-person requirement to incorporate has been removed; and second, incorporators could be persons other than natural persons.

What does this mean?

This means that even a single person can organize a corporation.  This is a complete departure from the old law that required at least five (5) natural persons to incorporate.

This also means that incorporators of a new corporation (other than a One Person Corporation, who needs to be a natural person, trust, or estate, as will be discussed below) need not be natural persons.  As stated in the new law, incorporators could be any "person, partnership, association or corporation, singly or jointly with others but not more than fifteen (15) in number."

Subject to the guidelines to be issued by the SEC, incorporators can either be a mix of natural or juridical persons (in other words, other corporations).

2.  Yes, there can be a One Person Corporation.

True to its promise, the new law introduced a new concept in Philippine Corporation Law: a ONE PERSON CORPORATION.  Yes, a single person can now form a corporation in the Philippines.

The law reads:

"Sec. 116.  One Person Corporation. - A One Person Corporation is a corporation with a single stockholder: Provided, That only a natural person, trust, or an estate may form a One Person Corporation.

Banks and quasi-banks, preneed, trust, insurance, public and publicly-listed companies, and non-chartered government-owned and -controlled corporations may not incorporate as One Person Corporations..."

The definition sets out the limit of a One Person Corporation ("OPC"): only natural persons, trust, or an estate may form such a corporation.  Other than the confusing fact that trusts are both allowed and disallowed to form an OPC (I'm guessing trusts are a fairly novel concept in Philippine law), the idea is pretty much straightforward.

The concept of an OPC is completely new so much so that the new law even devoted an entire chapter on it.  The following concepts are interesting to note:

1. OPCs do not have a minimum authorized capital stocks, unless required by a special law (as of date, there is none) (Sec. 117) 

2. OPCs do not need to submit corporate bylaws. (Sec. 119) 

3. Corporate names should indicate "OPC" either below or at the end of its corporate name. (Sec. 120) 

4. A single stockholder shall be the sole director and president of the OPC.  No need to have multiple directors. (Sec. 121) 

5. A single stockholder can be the Treasurer but NOT the Corporate Secretary. (Sec. 122)

6. There shall be a nominee/alternate who shall manage the corporation's affairs should the single stockholder be incapable of doing so. (Sec. 118 and 124) 

7. The single stockholder need not conduct meetings (for obvious reasons) and all corporate acts are done through a written resolution, signed and dated by the single stockholder, and recorded in the minutes book of the OPC. (Sec. 128) 

8. An OPC can be converted into an ordinary corporation and vice versa. (Sec. 131 and 132).

This new innovation is a great help for people starting up a business who cannot meet the 5-person requirement under the old law.  This will greatly reduce the instances of dummies being "elected" as members of the Board of Directors.

3.  Corporations can exist in perpetuity. 

Under the old law, corporations can exists only for fifty (50) years, renewable for another fifty (50) years.  The new law removes this limitation.  Corporations now exist in perpetuity by default.  The law reads:

"Sec. 11. Corporate Term. - A corporation shall have perpetual existence unless its articles of incorporation provides otherwise. 

Corporations with certificates of incorporation issued prior to the effectivity of this Code, and which continue to exist, shall have perpetual existence, unless the corporation, upon a vote of its stockholders representing a majority of its outstanding capital stock, notifies the Commission that it elects to retain its specific corporate term pursuant to its articles of incorporation: xxx"

Under the new law, not only new corporations can exist in perpetuity, existing corporations shall also exist perpetually even if their articles of incorporation provides otherwise (except only if the corporation notifies the SEC that it elects to limit its corporate life, which I highly doubt).

As I see it, the major beneficiaries of this innovation are condominium corporations.  One major drawback for condominium investors is the threat that their stake in the corporation (which is attached to their condominium unit) is limited by a 100-year existence.  With the removal of the term limit, condominium owners can retain their stake in the corporation perpetually, unless of course the corporation itself dissolves voluntarily.  This is good news for the country's real estate market.

4. The requirement for an Independent Director has been institutionalized.

Under existing laws prior to the Revised Corporation Code, companies specifically covered by Republic Act No. 8799, or "The Securities Regulation Code", and those required by the Bangko Sentral ng Pilipinas, are required to have independent directors on their board.  Now, this requirement has been expressly extended by the new law to "banks and quasi-banks, NSSLAs, pawnshops, corporations engaged in money service business, preneed, trust and insurance companies, and other financial intermediaries" (Sec. 22 [b]) and "Other corporations engaged in businesses vested with public interest" (Sec. 22 [c])

Under the new law, these newly-covered corporations (which are mostly financial institutions other than banks) need to have independent directors constituting at least twenty percent (20%) of such board.  Thus, if the corporation has fifteen (15) Board Members, three (3) should be independent directors.  This will cause major company overhauls in the country's financial sectors.

5. Supercharged powers of the SEC

Under the new law, the SEC was granted with what I call "supercharged powers" over corporations.  Title XVI of the Revised Corporation Code grants to the SEC full administrative powers over corporations, up to the extent of conducting investigations, issuing subpoenas, issuing cease and desist orders, declaring a person in contempt, and the imposition of administrative fines.

Yes, you heard it.  The SEC can issue cease and desist orders, or hold you in contempt if you refuse to do so.  The SEC is also authorized to impose administrative fines against corporations, ranging from Five Thousand Pesos (P5,000.00) to Two Million Pesos (P2,000,000.00), and not more than One Thousand Pesos (P1,000.00) for each day of continuing violation. (Sec. 158)  This is not to mention the SEC's authority to issue a permanent cease and desist order, to suspend or revoke the certificate of incorporation, and to dissolve the corporation and forfeit its assets.

With these powers, we would no doubt soon hear news of millions of pesos of administrative fines against corporations in the Philippines, similar to news that we hear from abroad, especially in the USA and in the EU.

6.  Option to Arbitrate

Corporations have long suffered the slow and rigorous court processes in order to address intra-corporate controversies.  Various methods have been implemented to alleviate this over the years, from the creation of Special Commercial Courts, up to the creation of special Rules for intra-corporate controversies.  These efforts, however, were far from successful.

To address this, the Revised Corporation Code expressly recognized arbitration as a mode to settle disputes "between the corporation, its stockholders or members, which arise from the implementation of the articles of incorporation or bylaws, or from intra-corporate relations". (Sec. 181)

What this means is that intra-corporate disputes can be taken out of court and be resolved in arbitration, a method which has proven to be faster and more effective (although much more expensive).

In order to avail of this remedy, the articles of incorporation or the by-laws of the corporation need only include an arbitration agreement.

Arbitration practitioners, including yours truly, find this innovation very promising.



Joseph Migriño is a practicing lawyer in the Philippines since 2010 and currently the Managing Partner of Migriño and Dacanay
Website: https://migrino.ph
Email: jr.migrino@migrino.ph
LinkedIn: linkedin.com/in/joseph-migrino
Follow me on Twitter: @jrmigrino

How to Incorporate a Company

So you want to start your own business. Here in the Philippines, you can do it through these common vehicles: Sole Proprietorship, Partnership or Corporation. Whatever business entity you want to adopt is entirely up to you. But if you intend to put up a corporation, prepare for much effort to keep up with the required paperwork.

To help those who want to put up a corporation, below is a brief guide on how to incorporate (at least through the Securities and Exchange Commission's [SEC] main office in Manila):

1. Reserve a company name. You can do it online (www.sec.gov.ph) where you have to register an account. You can also do it over-the-counter (SEC Name Verification Unit 2/F).

2. Pay the name reservation fee either at the SEC or any Unionbank branch (although I haven't tried paying through the latter) within four (4) days from your reservation. Get the receipt (together with the printout of your name reservation form) and proceed to the SEC Name Verification Unit (2/F) to have your payment confirmed. The good people at the SEC will then hand you Reservation Payment Confirmation (this is the Name Verification Slip). Make at least four (4) copies of this.

3. Prepare your company's Articles of Incorporation (AOI), Cover Sheet, By-Laws (if you want to submit the By-Laws simultaneous with your AOI), Treasurer's Affidavit and Affidavit of Correction. You can draft your own documents but there are pro-forma forms available at the SEC's Green Lane (3/F). Make sure the company name appearing in your documents is EXACTLY THE SAME as the one appearing in your Name Verification Slip (note: commas, periods, etc.). Prepare at least five (5) copies.

4. Submit the following documents, in the same order, to the SEC's Company Registration and Monitoring Department (CRMD) (2/F) for pre-processing:

a. Cover Sheet
b. Name Verification Slip
c. AOI
d. Treasurer's Affidavit
e. By-Laws (if applicable)
f. Undertaking to change name (if not yet included in the AOI)
g. Affidavit of correction (if there are corrections to the AOI/By-Laws)

5. The good people at SEC will pre-screen your documents and may make suggestions or require changes in your documents before they can be sent for approval. Be sure to bring liquid eraser, ballpen and a lot of patience if you want to finish this in a day.

6. After your application has been pre-processed, you will be given an Assessment Form detailing how much you have to pay as fees for the incorporation of your company.

7. Go to the cashier (G/F) and pay the amount stated in the Assessment Form.

8. Bring the Assessment Form (which is now already marked by the cashier) back to the CRMD (2/F).

9. Have the staff receive your documents. Ask for the probable date of the approval of your application.

10. Go back to the SEC (G/F) at the designated date to get your Certificate of Incorporation. You may have to pay Documentary Stamp Tax or other minimal fees upon getting your Certificate.

There you go. I hope this helps.

Technical Issues

My updates on this blog are currently on hold due to technical issues.

New posts will be out next week.

Why people can't understand how lawyers write

Some people say lawyers' writings are incomprehensible. Personally, I disagree. But then I read this book entitled Writing to Win - The Legal Writer by Steven D. Stark. In the Introduction of his book, Mr. Stark cited Robert D. White's Trials and Tribulations: Appealing Legal Humor, in identifying ten unfortunate characteristics of legal writing:

"1. Never use one word where ten will do.

2. Never use a small word where a big one will suffice.

3. Never use a simple statement where it appears that one of substantially greater complexity will achieve comparable goals.

4. Never use English where Latin, mutatis mutandis, will do.

5. Qualify virtually everything.

6. Do not be embarrassed about repeating yourself. Do not be embarrassed about repeating yourself.

7. Worry about the difference between 'which' and 'that'.

8. In pleadings and briefs, that which is defensible should be stated. That which is indefensible but you wish were true should be merely suggested.

9. Never refer to your opponent's 'argument'; he only makes 'assertions,' and his assertions are always 'bald.'

10. If a layperson can read a document from beginning to end without falling asleep, it needs work."

Then I started to doubt my earlier opinion of how lawyers write. And after going through Mr. Stark's book, my legal writing greatly improved (at least that's what my wife told me). Go figure.

What happens in cases before Labor Arbiters?

Running a business is not easy. Aside from the trouble of making sales and finding clients/customers, you also have to deal with your employees. Some employees are great. Others, well, are not so great.

So you started auditing your business. You discovered a discrepancy between your books of account and the actual cash on hand. You then called your bookkeeper or the person in charge of the cash for a meeting.

At the meeting, you confronted your employee with the discrepancy and asked where the rest of the money is. Your employee swears that all cash were properly turned-over. You do not believe him. Exasperated, you told him “You’re fired! Please leave the company immediately.”

A few weeks after, you suddenly receive a Subpoena from the National Labor Relations Commission informing you that your former employee filed a case against you for illegal dismissal. The notice states that you are to appear before a Labor Arbiter at a particular date and time.

Welcome to the world of labor disputes. Your former employee has filed a case against you. If you do not do anything, you may be commanded by the government to reinstate your former employee with full backwages.

Whether you are an employer or an employee, you may end up being involved in a labor dispute before a Labor Arbiter. What happens in this case? Below is a simple summary.

1. As in our hypothetical situation, the employer will receive a Subpoena requiring him/her to attend a Mandatory Conciliation and Mediation Conference. Both the employer and employee are required to attend this conference. The primary purpose of this conference is to find a way to amicably settle the case. This is not the time to air grievances before the Labor Arbiter – there is another time for that.

2. During the conference, the parties should exert every effort to arrive at a compromise. These Mandatory Conciliation and Mediation Conference/s may happen only once, twice, thrice, depending on the willingness of the parties to settle the case.

3. If during any of the conferences the case is settled, then that’s it. The parties will execute a compromise agreement and the case will be terminated.

4. If the case is not settled, the Labor Arbiter will order the parties to simultaneously submit their respective position papers. In the position papers, both the employer and the employee will relate the facts surrounding the dispute, present their evidence and their arguments on why they should win the case. The Labor Arbiters usually set a hearing for the purpose of simultaneously submitting and receiving copies of the parties’ respective position papers. During that hearing, the Labor Arbiter will set another hearing for the submission of the Reply.

4. A Reply is the answer to the position paper. This is where the party will contest and refute the narration made in the opposing parties’ position paper. At the hearing previously set by the Labor Arbiter, the parties will simultaneously submit and receive each other’s Reply. Sometimes, a party will request for a hearing to submit a Rejoinder. A Rejoinder is simply the answer to the Reply.

5. After the submission of the Rejoinder or Reply, as the case may be, the parties may submit the case for decision. Under the Rules, the Labor Arbiter should decide the case within thirty (30) days after the submission of the case by the parties for decision.

6. At any time before the Labor Arbiter renders a decision, the parties can amicably settle the case. If they want to do so, they must inform the Labor Arbiter immediately of their decision to end the dispute.

7. The Labor Arbiter’s decision will be mailed to both the employer and employee, or through their respective lawyers, if any. The decision may then be appealed to the National Labor Relations Commission within ten (10) days from receipt of the decision.

How do I transfer land to my name?

You just bought a house and lot. Now you want to transfer title from the seller's name to yours. If you're dealing with a real estate company, that company usually will take care of that for you. However, in some instances, especially if you bought the house and lot from an individual, you will have to work on it on your own.

So how do you do it? Here are a few tips:

1. Secure extra original copies of the Deed of Absolute Sale, if possible. Copies of this important document will be submitted to relevant government offices before the transfer can be processed. It's better if you always have an extra copy by your side. If the seller is a corporation, make sure that you also have an original copy of the Secretary's Certificate authorizing the sale of the corporation's land to you. It would also be best to personally know the lawyer who notarized the Deed of Absolute Sale. Under the law, he should have with him a copy of the Deed of Sale and, in case you lose your copy, you can always go back to the notary to get one.

2. Make sure the capital gains tax are paid. Under the law, it should be the seller who should file the Capital Gains Tax Return and pay the taxes due. However, you may be in a situation where the contract states that you will be liable for the taxes due on the sale. In this case, ask the seller for a duly accomplished Capital Gains Tax Return (because he/she has to sign), submit the Return to any Bureau of Internal Revenue (BIR) Authorized Agent Bank and pay the capital gains tax due.

3. After payment of Capital Gains Tax, secure a Certificate Authorizing Registration (CAR) from the BIR. A CAR is a document issued by the BIR which serves as proof that Capital Gains Tax for the sale of the property has been paid.

4. Make sure that the necessary transfer tax is paid to the local government unit where the property is located. Transfer taxes vary from one local government unit to another. It is best to consult with your local city/municipal/provincial treasurer regarding transfer taxes. Don't forget to get the receipt/proof of payment of transfer taxes.

5. Obtain a Realty Tax Clearance from the local government unit where the property is located. This is a document which proves that real property taxes over the property have already been paid. If there are delinquencies in the payment of real property tax, better discuss this with the seller of the property.

6. Secure a Owner's Duplicate Copy of the Title and the Certified True Copy of the latest Tax Declaration of the property you bought. You should ask the assistance of the seller in this.

7. After finishing everything, go to the Register of Deeds (RD) where the property is located with the following: (a) Deed of Absolute Sale; (b) BIR CAR/Tax Clearance Certificate; (c) Owner's Duplicate Copy of the Title; (d) Realty Tax Clearance; (e) Certified True Copy of the latest Tax Declaration of the property; and (f) Transfer Tax Receipt/Clearance. The lovely people at the RD will be more than happy to assist you.