The Madrid System is a centralized filing and management procedure.  Through the Madrid System you can file one international application, in one language (English, French or Spanish), and pay one set of fees in Swiss francs to obtain international registration in multiple territories. (World Intellectual Property Organization)

What is the Madrid Protocol

The Madrid Protocol, is an international treaty which was adopted in order to remove the challenges deterring some countries from acceding to the Madrid Agreement, has two objectives, namely: (1) to facilitate securing protection for marks; and (2) to make the management of the registered marks easier in different countries.

Is the Madrid Protocol unconstitutional?

In the 2016 Special Civil Action case, the Intellectual Property Association of the Philippines (IPAP) questioned the constitutionality of the Madrid Protocol on the ground that the Madrid Protocol required the concurrence of the 2/3 of all the members of the Senate provided under Section 21 Article VII of the 1987 Constitution.

The Supreme Court ruled that the Madrid Protocol is in the nature of an executive agreement which maybe validly entered into without Senate’s concurrence under Executive Order No. 459.  Contrary to IPAP’s argument, the Madrid Protocol was signed pursuant to the mandate of Section 2 of the IPO Code which states that “It is also the policy of the State to streamline administrative procedures of registering patents, trademarks and copyright, to liberalize the registration on the transfer of technology, and to enhance the enforcement of intellectual property rights in the Philippines.”

Is the Madrid Protocol in Conflict with the IP Code

The Supreme Court ruled that the argument that the Madrid Protocol conflicts with the IPO Code on the ground that it does away with the requirement of a resident agent under Section 125 of the IP Code is untenable.  The Madrid Protocol is in accord with the spirit and intent of the IP Code insofar as the registration of trademarks is concerned.  It also stated that the method of registration through the IPOPHL, as laid down by the IP Code, is distinct and separate from the method of registration through the WIPO, as set in the Madrid Protocol. Comparing the two methods of registration despite their being governed by two separate systems of registration is thus misplaced.

Effective January 2017, the Electronic Records Management division (“ERMD”) of the Securities and Exchange Commission (“SEC”) shall only accept GIS filings that conform to the prescribed new GIS Form.

The new GIS Form (version 2016) shall contain the following revisions, as provided under SEC Memorandum Circular No. 16, series of 2016:

1. The Tax Identification Numbers (TIN) of the Board of Directors/Trustees, Officers and Stockholders of domestic corporations and Resident Agent and Officers in the Philippines shall be included in a separate sheet designated as the TIN Page;

2. The residential addresses of the Directors/Trustees, Officers and Stockholders on pages 3 and 4 of the GIS for stock and non-stock corporations shall likewise be indicated in the TIN Page; and

3. The Corporate Secretary’s Certification of the GIS for stock and non-stock corporations shall read as follows:

“ I, ______, CORPORATE SECRETARY OF THE ABOVE-MENTIONED CORPORATION, DECLARE UNDER THE PENALTY OF PERJURY, THAT ALL MATTERS SET FORTH IN THIS GENERAL INFORMATION SHEET CONSISTING OF _____ (__) PAGES HAVE BEEN MADE IN GOOD FAITH, DULY VERIFIED BY ME AND TO THE BEST OF MY KNOWLEDGE AND BELIEF, ARE TRUE AND CORRECT.

 I HEREBY CERTIFY THAT THE PERSONS INDICATED AS MEMBERS OF THE BOARD OF DIRECTORS/TRUSTEES AND OFFICERS OF THE CORPORATION HAD CONSENTED TO BE NOMINATED AND ELECTED.

 I UNDERSTAND THAT THE FAILURE OF THE CORPORATION TO FILE THIS GIS FOR FIVE (5) CONSECUTIVE YEARS SHALL BE CONSTRUED AS NON-OPERATION OF THE CORPORATION AND A GROUND FOR THE REVOCATION OF ITS CERTIFICATE OF INCORPORATION. IN THIS EVENTUALITY, THE CORPORATION HEREBY WAIVES ITS RIGHT TO A HEARING FOR THE SAID REVOCATION.”

             Copies of the new GIS Forms may be downloaded at http://www.sec.gov.ph/reportorial-requirements/corporations-with-primary-licenses-2/.

It is well-settled in law and jurisprudence that a director of a corporation holds a position of trust. As such, he owes a duty of loyalty to his corporation. This duty of loyalty mandates the members of the Board to put the interests of the Corporation before their own. Being corporate managers, they are likewise expected to seek maximum profits for the benefit of the corporation. It is because of this that a Board of Director cannot use his power for his personal knowledge and to the detriment of the corporation’s stockholders and creditors.

Section 31 of the Corporation Code lays down the Doctrine of Corporate Opportunity. The law provides:  

Directors or trustees who willfully and knowingly vote for or assent to patently unlawful acts of the corporation who are guilty of gross negligence or bad faith in directing the affairs of the corporation or acquire any personal or pecuniary interest in conflict with their duty as such directors or trustees shall be liable jointly and severally for all damages resulting therefrom suffered by the corporation, its stockholders or members and other persons.

When a director, trustee or officer attempts to acquire or acquires in violation of his duty, any interest adverse to the corporation in respect of any matter which has been reposed to him in confidence, as to which equity imposes a disability upon him to deal in his own behalf, he shall be liable as a trustee for the corporation and must account for the profits which otherwise would have been accrued to the corporation.

Section 34 of the Corporation Code likewise provides:

Where a director, by virtue of his office, acquires for himself a business opportunity which should belong to the corporation, thereby obtaining profits to the prejudice of such corporation, he must account to the latter for all such profits by refunding the same, unless his act has been ratified by a vote of the stockholders owning or representing at least two-thirds (2/3) of the outstanding capital stock. This provision shall be applicable, notwithstanding the fact that the director risked his own funds in the venture.

Simply stated, under the Doctrine of Corporate Opportunity, a director who acquires for himself a business opportunity which should belong to the corporation, obtaining profits to the prejudice of such corporation is guilty of disloyalty and should therefore account for all such profits by refunding the same.

Thus, a Director who establishes a business similar to that of the Corporation he serves violates his fiduciary thereto. His fiduciary duty to the Corporation prohibits him from acquiring a personal or pecuniary interest that conflicts with his duty as a member of the Board. In such cases, it is of no moment that the Director purchased his assets with his own money and not that of the Corporation. To be sure, Sections 31 and 34 of the Corporation Code not only prohibit the unauthorized use of company property for the personal business of a Director. Instead, these two provisions likewise expressly allow a member of the Board from entering into any opportunity which the Corporation could profit from.

           SEC-registered Corporations with primary licenses are mandated by law to submit the following reports, with the goal of promoting transparency and ensuring accountability among companies:

1. General Information Sheet (“GIS”); and
2. Audited Financial Statements (“AFS”) stamped “RECEIVED” by the Bureau of Internal Revenue (“BIR”)

 GIS

            The GIS is a document certified and sworn to by the Corporate Secretary. Under the Corporation Code, the GIS must be submitted within thirty (30) days from the date of the annual stockholders’ or members’ meeting in case of domestic stock or non-stock corporations. If the corporation is unable to hold the meeting for the calendar year, the GIS shall be filed not later than January of the following year. On the other hand, the GIS for a non-operational corporation must be accompanied an Affidavit of Non-Operation within 120 calendar years after the end of the fiscal year.

It must be noted that under SEC Memorandum Circular No. 16, the failure of the Corporation to submit its GIS for five consecutive years shall be construed as non-operation and a ground for the revocation of its Certificate of Incorporation.

AFS

            The AFS, on the other hand, is a document certified under oath by either the treasurer of the corporation (in case of a domestic stock corporation with paid-up capital of less than five hundred thousand pesos or a domestic non-stock corporation with annual gross receipts of less than one hundred thousand pesos or total assets of less than five hundred thousand pesos) or an independent certified public accountant (in case of domestic stock corporations with paid up capital of five hundred thousand pesos or more or domestic non-stock corporations with annual gross receipts of one hundred thousand pesos or more or total assets of fifty million pesos or more). Under the law, the AFS should be submitted within one hundred twenty calendar days after the end of the fiscal year, as indicated in the Financial Statements.

Sending Notices to Stockholders and Members of the Board through E-mail

Section 50 of the Corporation Code requires that a notice of writing of the meeting be given to the stockholders at least two weeks prior to a regular meeting and at least one week prior to a special meeting unless otherwise provided by the by-laws of the Corporation. Section 53 of the Corporation Code, on the other hand, requires that the notice of regular or special meetings be furnished to the director at least one day prior to the scheduled meeting. These requirements are mandatory and are essential for the validity of the said meetings. In this regard, proceedings and resolutions passed during meetings with defective notices are null and void.

As a general rule, the written notice of the meeting must be sent through regular post mail, given to the stockholders, directors or trustees within the periods provided in the Corporation Code. It is worth noting, however, that the law allows the corporation to provide a different mode of notice in its by-laws.

Given these stringent requirements, the question, may the notices be sent through e-mail, was raised before the Securities and Exchange Commission (SEC) in 2013.

In SEC-OGC Opinion No. 13-10, the SEC recognized the validity of e-mail as a mode of sending notices of meetings to stockholders and directors. To be valid, however, there are certain requirements that must be complied with. The pertinent portion of the SEC-OGC reads:

“In this connection, since the Corporation Code merely requires notice of the meeting ‘in writing,’ an e-mail notice may be included as a mode of notice in the by-laws of a corporation, since an e-mail is considered ‘in writing.’ In such a case, the by-laws must, likewise, provide for the mechanics of such sending of notices through e-mail, including the indication, recording, changing and recognition of e-mail addresses of each stockholder/director. However, it must be stressed that absent such specific provisions on notice requirements in a corporation’s current and standing by-laws, the general/default rule-written notice sent through regular postal mail- applies.

Be that as it may, it should be noted that the Corporation Code allows the express or implied waiver of the notice requirement by stockholders, members, directors or trustees. In this wise, it may be conjectured that a signature of a stockholder/director/trustee acknowledging receipt of a notice of meeting sent through e-mail may be considered such a waiver.”

Deductible Expenses

Under the National Internal Revenue Code of the Philippines, valid business expenses may be deductible from the gross income in order to legally reduce a taxpayer’s taxable income. Understanding the concept of deductible expenses is of paramount importance especially to those who are engaged in a business. After all, business expenses are necessarily incurred in order to earn a profit. In this regard, these allowable deductions become tools by which taxpayers can equitably measure the net income that the taxpayers earn from their respective business undertakings.

As a rule, an expense may be deducted from the income if the following requisites concur: (1) the expenses must be ordinary and necessary, (2) it must have been paid or incurred during the taxable year, (3) it must have been paid or incurred in the trade or business of the taxpayer, and (4) it must be substantiated by receipts, records and other pertinent papers. In addition, if the expense is subject to withholding tax, the same must be paid and remitted to the Bureau of Internal Revenue (BIR).

The deductible business expenses must likewise be legitimate and legal. This requirement is necessary in order to avoid the manipulation of business expenses to lower down income taxes or to encourage illegal activities in the operation of one’s business. As such, facilitation fees such as bribes and kickbacks to corrupt public officials are not allowed as deductible business expenses.

The common allowable deductions from gross income under the National Internal Revenue Code of the Philippines include the following:

1. Bad debts
2. Depreciation
3. Depletion
4. Taxes
5. Research and Development Costs
6. Interest
7. Pension Trust Contributions
8. Charitable and other contributions
9. Ordinary and Necessary Expenses
10. Losses

These deductions are available to individual and corporate taxpayers provided that the individuals are not purely compensation earners and that the corporations are not non-resident foreign corporations; provided, further, that they do not choose to avail of the Optional Standard Deduction (OSD) of forty percent (40%) of the gross income. It is worth noting that the income of non-resident foreign corporations is taxed at gross. Hence, they are not allowed any deduction.

A domestic corporation, for this purpose, is one that is created and organized under the laws of the Philippines. A foreign corporation, on the other hand, is one that is organized under the laws of any other country. A foreign corporation may either be a resident- one that is engaged in trade or business in the country; or a non-resident- one that is not engaged in trade or business in the Philippines.

Domestic Corporations

A domestic corporation is taxed at thirty percent (30%) of its taxable income. In the event that a corporation has zero or negative taxable income or whenever the minimum corporate income tax is greater than the normal income tax due from such corporation, the Tax Code imposes a Minimum Corporate Income Tax (MCIT) of two percent (2%).

A domestic corporation may likewise be subject to Improperly Accumulated Earnings Tax of ten percent (10%). Under the Philippine Tax Code, Improperly Accumulated Earnings Tax is imposed on every corporation formed or used for the purpose of avoiding income tax with respect to its shareholders, by allowing its earnings and profits to accumulate instead of being divided or distributed.

Resident Foreign Corporations

Resident foreign corporations are taxed in the same manner as domestic corporations but only on income derived from Philippine sources.

A 2.5% income tax is imposed on the gross Philippine billings of International Carriers, unless a lower rate is available under an existing tax treaty. Exemption from this tax is available under international agreements to which the Philippines is a signatory or on the basis of reciprocity.

Regional or Area Headquarters of Multinational Corporations that do not earn or derive income from the Philippines, merely acting as supervisory, communications and coordinating centers for their affiliates, subsidiaries or branches in the Asia-Pacific Region and other foreign markets are not subject to Corporate Income Tax. On the other hand, a Regional Operating Headquarters (ROHQ)[1] is required to pay a tax of ten percent (10%) of their taxable income.

Non-Resident Foreign Corporations

Non-resident foreign corporations are taxed on gross income, derived from sources within the Philippines at thirty percent (30%). Lower rates and even exemption may be available under an applicable tax treaty to which the Philippines is a signatory.

[1] An ROHQ is a branch established in the Philippines by a multinational company that is engaged in any of the following services: general administration and planning, business planning and coordination, sourcing and procurement of raw materials and components, corporate finance advisory services, marketing control and sales promotion, training and personnel management, logistic services, research and development services and product development, technical support and maintenance, data processing and communication, or business development.

The Supreme Court of the Philippines answered this question in Mindanao Savings and Loan Association, Inc. v. Willkom, G.R. No. 178618, 20 October 2010, stating that a merger does not become effective upon the mere agreement of the constituent corporations. Rather, it shall only be effective upon the issuance of a certificate of merger by the Securities and Exchange Commission (SEC) after its prior determination that the merger is not inconsistent with the Corporation Code or existing laws.

The Supreme Court ruling on this matter is instructive:

The merger, however, does not become effective upon the mere agreement of the constituent corporations. Since a merger or consolidation involves fundamental changes in the corporation, as well as in the rights of stockholders and creditors, there must be an express provision of law authorizing them.

The steps necessary to accomplish a merger or consolidation, as provided for in Sections 76, 77, 78, and 79 of the Corporation Code, are:

(1) The board of each corporation draws up a plan of merger or consolidation. Such plan must include any amendment, if necessary, to the articles of incorporation of the surviving corporation, or in case of consolidation, all the statements required in the articles of incorporation of a corporation.

(2) Submission of plan to stockholders or members of each corporation for approval. A meeting must be called and at least two (2) weeks’ notice must be sent to all stockholders or members, personally or by registered mail. A summary of the plan must be attached to the notice. Vote of two-thirds of the members or of stockholders representing two-thirds of the outstanding capital stock will be needed. Appraisal rights, when proper, must be respected.

(3) Execution of the formal agreement, referred to as the articles of merger o[r] consolidation, by the corporate officers of each constituent corporation. These take the place of the articles of incorporation of the consolidated corporation, or amend the articles of incorporation of the surviving corporation.

(4) Submission of said articles of merger or consolidation to the SEC for approval.

(5) If necessary, the SEC shall set a hearing, notifying all corporations concerned at least two weeks before.

(6) Issuance of certificate of merger or consolidation.

Clearly, the merger shall only be effective upon the issuance of a certificate of merger by the SEC, subject to its prior determination that the merger is not inconsistent with the Corporation Code or existing laws. Where a party to the merger is a special corporation governed by its own charter, the Code particularly mandates that a favorable recommendation of the appropriate government agency should first be obtained.

          In this case, it is undisputed that the articles of merger between FISLAI and DSLAI were not registered with the SEC due to incomplete documentation. Consequently, the SEC did not issue the required certificate of merger. Even if it is true that the Monetary Board of the Central Bank of the Philippines recognized such merger, the fact remains that no certificate was issued by the SEC. Such merger is still incomplete without the  certification.

The issuance of the certificate of merger is crucial because not only does it bear out SEC’s approval but it also marks the moment when the consequences of a merger take place. By operation of law, upon the effectivity of the merger, the absorbed corporation ceases to exist but its rights and properties, as well as liabilities, shall be taken and deemed transferred to and vested in the surviving corporation.

The same rule applies to consolidation which becomes effective not upon mere agreement of the members but only upon issuance of the certificate of consolidation by the SEC. When the SEC, upon processing and examining the articles of consolidation, is satisfied that the consolidation of the corporations is not inconsistent with the provisions of the Corporation Code and existing laws, it issues a certificate of consolidation which makes the reorganization official. The new consolidated corporation comes into existence and the constituent corporations are dissolved and cease to exist.”

PEZA is a government agency attached to the Department of Trade or Industry created to promote investments into the country by assisting investors in registering and facilitating their business operations and providing tax incentives. It also provides assistance to foreign entities in their operations within the different PEZA Special Economic Zone.

The following are the fiscal and non-fiscal incentives given by PEZA to several businesses:

Fiscal Incentives:

• Income Tax Holiday – 100% exemption from Corporate Income Tax
• Upon expiration of Income Tax Holiday, 5% Special Tax on Gross Income and exemption from Local Taxes
• Tax-free importation of raw materials, capital equipment, machineries and spare parts
• Exemption from wharfage dues and export tax, imposts or fees
• VAT zero-rating of local purchases subject to compliance with the requirements of the BIR and the PEZA
• Exemption from payment of any local government imposts, fees, licenses or taxes
• Exemption from Expanded Withholding Tax

Non-Fiscal Incentives 

• Simplified Import-Export Procedures
• Special Non-immigrant visa with multiple entry privileges for the following foreign nationals: investors, officers and employees in supervisory, technical or advisor position and their spouses as well as their unmarried children under twenty-one.
• Extended visa facilitation to foreign nationals, their spouses and dependents.

Registration with the PEZA also ensures smoother and easier business operations in the Philippines. Aside from saving on taxes and fees, PEZA registration also ensures the faster acquisition of permits and other registration requirements.

Philippine Law states that one’s employment may only be terminated if there is a lawful basis for it. This means that employment may only be terminated for just and authorized causes. In spite of the presence of a just or authorized cause, the employer must nevertheless observe due process.

What are the components of procedural due process?

In a termination grounded on a just cause, due process requires the observance of the two-notice rule, to wit:

1. A notice of intent to dismiss specifying the ground of termination and giving said employee reasonable opportunity within which to explain his or her side usually through a hearing or conference;
2. A notice of dismissal indicating that upon due consideration of all the circumstances, grounds have been established to justify termination.

On the other hand, in a termination for an authorized cause, due process means a written notice of dismissal to the employee specifying the grounds at least thirty days before the date of termination. The Department of Labor and Employment (DOLE) should be furnished with a copy of the said notice.

What is the effect if due process is not observed even if there are just or authorized causes?

The Supreme Court has grappled with the legal effect and sanction in cases where a just and valid ground exists to justify the dismissal but the employer fails to comply with the due process requirement of the law. In 2004, the Supreme Court of the Philippines finally settled the issue in Agabon v. NLRC, G.R. No. 158693, November 17, 2004, holding that the failure of the employer to observe procedural due process does not render the dismissal ineffectual, provided that there are just or authorized causes. Rather, the failure to observe due process merely renders the employer liable for nominal damages.