Opinion No. 14-21 RE: Foreign Corporation; Doing Business

Republic of the Philippines

SEC Building, EDSA, Greenhills, Mandaluyong City Securities and Exchange Commission Department of Finance

OFFICE OF THE GENERAL COUNSEL

05 August 2014

SEC-OGC Opinion No. 14-21 Foreign Corporation; Doing Business

Unit 1402,Equitable Bank Tower 8751 Paseo De Roxas 1226 Makati City PARAS AND MANLAPAZ

Sr:

concerning questions of your client, AP TRANS S.A., a foreign corporation under the laws of Belgium, regarding the necessity of obtaining by a foreign corporation of a license to do business under the Corporation Code. This refers to your letter-request for legal opinion dated February 9, 2009

of Belgium; and that on December 19, 2008, it entered into a contract, after undergoing the required government bidding process, with the Light Rail (EMS-3:AFCS). You further declared that AP TRANS S.A. has not engaged, nor it Transit Authority (LRTA), a wholly-owned government corporation, relative to will be engaged in any other business activity within the Philippines other than the aforesaid project. the LRT-1 North Extension Project - EMS-3: Automated Fare Collection System Briefly, you stated that your client is a foreign corporation under the laws

entered into only one (1) contract to be performed in the Philippines with no intention to continue any other commercial dealings in the Philippines, whether TRANS S.A. is exempt from obtaining license to do business in the Philippines?" AP TRANS S.A. is engaged in an isolated transaction in the Philippines and is deemed not engaged in doing business in the Philippines; and (b) whether AP In summary, your queries are: (a) Considering the fact that it has already

the meaning of "doing business": Section 3 (d) of the Foreign Investments Act (FIA), as amended, defines

"d. The phrase "doing business" shall include soliciting orders, service contracts, opening offices, whether called distributors domiciled in the Philippines or who in any calendar year stay in the country for a period or periods totaling one hundred eighty [180] days or more; any domestic business, firm, entity or corporation in the Philippines; and any other act or acts that imply a contemplate to that extent the performance of acts or "liaison" offices or branches; appointing representatives or participating in the management, supervision or control of continuity of commercial dealings or arrangements and works, or the exercise of some of the functions normally incident to, and in progressive prosecution of

business organization: Provided, however, That the mere investment as a shareholder by a foreign entity in and/or the exercise of rights as such investor; nor having a nominee director or officer to represent its interests in such commercial gain or of the purpose and object of the phrase "doing business" shall not be deemed to include domestic corporations duly registered to do business,

corporation; nor appointing a representative or distributor domiciled in the Philippines which transacts business in its own name and for its own account,"

(Emphasis and underscoring supplied)

foreign corporation operates a business in the Philippines without a license, and jurisdiction of the courts of the state and to enable the government to exercise jurisdiction over them for the regulation of their activities in this country.1 If a thus does not submit itself to Philippine laws, it is only just that said foreign corporation be not allowed to invoke them in our courts when the need arises. for our mutual benefit, they must be prepared as an indispensable condition to corporation desiring to do business within the Philippines to submit itself to the "While foreign investors are always welcome in this land to collaborate with us The primary purpose of the license requirement is to compel a foreign

respect and be bound by Philippine law in proper cases."2

2 Granger Associates v. Microwave Systems, Inc., G.R. No. 79986, September 14, 1990, 189 SCRA 631. 1 Eriks Pte.,Ltd.v.CA,G.R.No.118843,February 6,1997,267 SCRA 567

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doing business in the Philippines. This Commission opines that AP TRANS S.A. is a foreign corporation

has been held by the Supreme Court that participating in the bidding process constitutes "doing business" because it shows the foreign corporation's intention exercise of the corporation's reason for creation or existence.4 As further Wenceslao v. Ingenieuburo Birkhan + Nolte Ingiurgesellschaft mbh and Heers & Brockstedt Gmbh & Co.:5 subsequently awarded) the LRTA Project for the EMS-3:AFCS.Relative thereto,it to engage in business here. 3 The bidding for the concession contract is but an explained by the Supreme Court in European Resources and Technologies Inc. and AP TRANS S.A. has actively participated in the bidding (and was

"There is no general rule or governing principle laid down as to what constitutes "doing" often been held that a single act of transaction may be foreign corporation's intention to engage in business in considered as "doing business" when a corporation performs acts for which it was created or exercises some constitutes "doing business" because it shows the foreign corporation of the acts for which it was created, regardless of volume of business, that determines whether a foreign corporation needs a license or not. "transacting" business in the Philippines. Thus, it has of the functions for which it was organized. We have held that the act of participating in a bidding process the Philippines. In this regard, it is the performance by a or "engaging in" or

in the Philippines without the appropriate license as conducted by the CDC for the operation of the waste establishment of a local corporation to serve as twenty-five years. Moreover, the German Consortium was "Consequently, the German Consortium is doing business required by our laws. By participating in the bidding management center, the German Consortium exhibited its intent to transact business in the Philippines. respondents' representative, it is clear from the other provisions of the Contract for Services as well as the letter German Consortium which shall manage and conduct the Although the Contract for Services provided for the operations of the waste management center for at least by the CDC containing the disapproval that it will be the

3 Hutchison Ports Philippines Ltd. v. SBMA, et al., G.R. No. 131367, 31 August 2000, 339 SCRA 434 5 G.R. No. 159586. July 26, 2004, 435 SCRA 246 4 Ibid

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for solid waste collection. Thus, it is clear that the local allowed to transact with other entities outside the CSEZ corporation to be established will merely act as a conduit or extension of the German Consortium."

(Emphasis and underscoring supplied; citations omitted)

between LRTA and AP TRANS S.A., which you attached in your letter-query evidently acknowledged in Paragraph 2 of the Contract dated December 19, 2008 The active participation of AP TRANS S.A. in the bidding process is

bidding process for the LRTA Project makes the said foreign corporation as designing and installing automated ticketing and fare collection machines and "doing business" in the Philippines, in line with its main business of selling, equipment, as can be seen in their corporate website.6 Thus, that AP TRANS S.A. has actively participated in a government

page 6 of Special Conditions of the Contract, the duration of the whole work is to Moreover, based from the Bidding Documents, in particular Item 2.2.,

envisages a situation where the 180-day period applies to the appointment of calendar year stay in the country for a period totaling 180 days, the absence of any statement in your letter-request as to the stay of AP TRANS S.A.'s representatives in the Philippines leads to the reasonable presumption that they all, it is only logical to expect that it will be the representatives and agents of AP TRANS S.A. who will supervise, control and implement the different phases of 180-day period as provided for in the FIA. While it may be argued that the FIA representatives or distributors domiciled in the Philippines or who in any will be in the country from the commencement of the project until its end. After be completed in twenty-two (22) months. Such period of duration exceeds the the project.

you already sought a similar opinion from this Commission which also involved Lastly, it is worth stressing that this opinion is not new to you. Previously,

corporation (DAXI) and subject of contract (for EMS-4: Trackworks).7 In the said opinion, this Commission opined that the foreign corporation is doing business the same LRT-1 North Extension Project albeit with a different foreign considering that (1) the Work Schedule of the project would exceed the 180-day period as provided for by the Foreign Investments Act; and (2) the mere fact that

http://www.prodatamobility.com/index.php?page=afc-mobility-products. Retrieved on July 17 7 SEC Opinion 09-18, July 24, 2009, addressed to Paras and Manlapaz Law Office. 2014, 15:30 http://www.aptrans-group.com/. Retrieved on Juy17 2014 15:30;

the foreign corporation participated in the bidding process under Philippine laws would make such foreigner company as doing business here.

raised therein and shall not be used in the nature of a standing rule binding upon the courts, or upon the Commission in other cases of similar or dissimilar on the facts disclosed in the query and relevant solely to the particular issues circumstances.8 If upon investigation, it will be disclosed that the facts relied It shall be understood that the foregoing opinion is rendered based solely

upon are different, this opinion shall be rendered null and void.

CAMCORE Gereral Counsel

F

8 SEC Memorandum Circular 2003-15.