Opinion No. 19-29 Re: Wholly or Partly Nationalized Activity; Anti-Dummy Law.

Securities and Exchange Commission Republic of the Philippines Department of Finance

OFFICE OF THE GENERAL COUNSEL

28 August 2019

SEC-0GC 0pinion No. 19-29 Wholly or Partly Nationalized Activity; Anti-Dummy Law

Subdivision, Paranaque City 9 Amsterdam Extension, Merville Park AMBICA INTERNATIONAL CORPORATION

Attention: Atty. Gener C. Sansaet and Atty. Marie Madeleine L.R.

Victorino, Counsels for Ambica International Corporation

Gentlemen:

other applicable laws, and whether it is covered by the Anti-Dummy Law2. opinion on whether Ambica International Corporation ("Ambica") is engaged in a wholly or partly nationalized activity under the Foreign Investments Act ("FIA") and This refers to your letters dated 20 March 2019 and 30 July 2019 requesting an

government; 4. Wholesalers - top wholesalers who sell to independent drugstores; 5. and trading of pharmaceutical products, cosmetics and food products with paid up capital of Php63,500,000.00. It is further disclosed that Ambica's customers are as follows: 1. Distributors - top local pharmaceutical companies from various regions with their own sales and marketing force; 2. Chain drugstores; 3. Hospitals - both private and Independent drugstores; and 6. Private and Government institutions. In your letter, you stated that Ambica is primarily engaged in the importation

Incorporation (A01) that you submitted on 07 August 2019, the primary purpose of activity, there must be an evaluation of its primary purpose. In the amended Articles of Ambica is: To determine whether Ambica is engaged in wholly or partly nationalized

of wholesale trading, importing, exporting, and repackaging mentioned herein." (Emphasis ours) consumer goods, medical devices, molecular diagnostic household products, and other related items as well as to act as trading consultant for other parties with respect to the business activities and the products "That the primary purpose of this corporation is to engage in the business pharmaceutical, food supplements or functional cosmetic products,

2 Commonwealth Act No. 108, as amended, 30 October 1936 Republic Act No. 7042, Foreign Investments Act of 1991, 13 June 1991, as amended by Republic Act No. 8179

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or calling of habitually selling to the general public merchandise, commodities and Liberalization Act of 2000 (RTLA)3. The RTLA defines retail trade as any act, occupation goods for consumption.4 Pertinent to the evaluation of Ambica's purpose clause is the Retail Trade

following elements5 should concur: For trading, which involves buying and selling, to be considered as retail, the

2.The sale must be direct to the general public; and 3. The object of sale is limited to merchandise, commodities, or goods for 1. The seller should be habitually engaged in selling: consumption.

users, is not considered retail sale, to wit: with independent corporations who will sell such products to other corporate end- only the sale of goods for consumption to the general public as end-user. Thus, in SEC-OGC Opinion No. 06-327, the Commission opined that distributorship agreements In SEC-OGC Opinion No. 14-126, the Commission explained that the RTLA covers

business end-users. x x x Based on the foregoing, it is the opinion of this Office that the proposed activities of NBPI are not embraced in the category of retail sale." and other business entities which will engage in the sales and marketing of NBPI's products to corporate and Distributorship Agreements and wholesale marketing agreements with independent corporations, partnership "In the case at hand, NBPI represents that it will enter into

provides that the following sales are not considered retail: Moreover, Section 2 of the Implementing Rules and Regulations of the RTLA

sales are not considered as retail: xxx "Section 2. Sales Not Considered As Retail -- The following

public and/or produce or manufacture (of) goods which are in turn sold by them; or (e) Sales to industrial and commercial users who use the products bought by them to render service to the general

(f) Sales to the government and/or its agencies and government owned and controlled corporations."

customers, Ambica is deemed not to be engaged in retail trade because it is selling on a Upon evaluation of Ambica's purpose clause and based on its disclosed

5 SEC OGC Opinion No. 18-10 addressed to First Associated Medical Distribution Co., Inc. dated 4 June 2018 6 SEC OGC Opinion No. 14-12 addressed to Reyes Esguerra Baluyut Benitez & Bongco Law Offices dated 2 June 2014 7 SEC OGC Opinion No. 06-32 addressed to Cayetano Sebastian Ata Dado & Cruz dated 2 August 2006 3 Republic Act No. 8762, Retail Trade Liberalization Act of 2000, 07 March 2000 4 Ibid. Section 3(1)

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and sales to government institutions, are considered not retail. users who use Ambica's products to render service to the general public (i.e. hospitals), wholesale basis; hence, its sales are not direct to the general public. As represented by Ambica, its sales are made to customers who are not the end-users of its products (i.e. distributors, drugstores, wholesalers). Meanwhile, sales to industrial and commercial

enterprises8 under the FIA since its paid-up capital is P63,500,000.00 or more than the paid-in equity capital threshold of USD200,000.009 Ambica is also not subject to the foreign equity restriction for domestic market

engaged in a wholly or partly nationalized activity. Consequently, the Anti-Dummy Law10 does not apply to Ambica, since it is not

Commission in other cases or upon the courts whether of similar or dissimilar circumstances. 11 If, upon further inquiry and investigation, it will be disclosed that the facts relied upon are different, this opinion shall be rendered null and void. raised therein and shall not be used in the nature of a standing rule binding upon the solely on facts and circumstances disclosed and relevant solely to the particular issues It shall be understood, however, that the foregoing opinion is rendered based

Please be guided accordingly.

CAMYLO4.CORREA General Counsel

citizens of the Philippines" or "corporations or associations at least 60% of the capital of which is owned by such citizens". It, however, allows such alien to be elected as director in proportion to his allowable participation in the 11 SEC Memorandum Circular No. 15, s. of 2003, No.7, 16 December 2003 nationalized activity or business undertaking, prohibits the employment of any person, corporation, or association of an alien, who shall intervene in the management, operation, administration or control thereof, whether as officer, employee, laborer, when the exercise or enjoyment of the property or of the franchise privilege, or business engaged in by such person, corporation or association "is expressly reserved by the Constitution or the law to the corporation's capital. two hundred thousand US dollars (US$200,000) are reserved to Philippine nationals, x x x. (Emphasis ours) (Listed as Item no. 6, List B of the 11th FINL) 1o Section 2-A of the Anti-Dummy Law, which applies to corporations engaged in wholly or partially Philippines. (Emphasis ours) 9 FIA, Section 8. List of Investment Areas Reserved to Philippine Nationals (Foreign Investment Negative List) - x x Small and medium-sized domestic market enterprises, with paid-in equity capital less than the equivalent enterprise which produces goods for sale, renders service, or otherwise engages in any business in the 8 Implementing Rules and Regulations of FIA of 1991, Section1k. Domestic market enterprise shall mean an