Opinion No. 24-22 Re: Allowable Activities of a Representative Office

Exchange Securities and Commission 11s

BAGONG PILIPINAS

QFFICE OF THE GENERAL COUNSEL

Re: Allowable Activities of a SEC OGC Opinion No._24 - 22 Representative Qffice

[0September 2024

26th Floor BDQ Towers Valero 8741 Pa$eo de Roxas Makati City 1209 Philippines aslmolina@reyestacandong.com REYES TACANDONG & CO. mctfojas@reyestacandong.com

Attention: Atty. Arvin Stephen L. Molina

Atty. Ma. Carmela T. Fojas

Dear Attorneys:

representative office in the Philippines is allowed to deal directly with its parent company's clients outside the Philippines. This pertains to your 31 July 2024 letter1 requesting for an opinion on whether or not a

laws of Austria with a registered office therein. The company is primarily engaged in the trade of goods. purchase and sale of goods of all kinds. especially abroad, and providing service, management, and consulting in the export sector, as well as the You stated that your client is a foreign limited liability company organized and existing under the

Philippines for marketing and management service purposes dealing directly with the clients of the company: You also stated that the company is considering establishing a representative office in the

1. 2 In the countries located in Southeast Asia. Located in the Philippines; and

Thus, your query.

the Foreign Investment Act (FIA) (FiA-IRR), as amended2, defines a representative or liaison office as: Rule I, Section 1 (q) of the Implementing Rules and Regulations (IRR) of Republic Act No. 7042 or

income from the host country and is fully subsidized by its head office. It undertakes activities such as but "Representative or liaison office deals directly with the clients of the parent company but does not derive control of products.' not limited to information dissemination and promotion of the company's products as well as quality

Amending thereby Republic Act No. 7042, otherwise known as the "Foreign Investment Act of 1991", As Amended, and for Other 2 Implementing Rules and Regulations of Republic Act (RA) No. 11647 or An Act Promoting Foreign Investment Investments Purposes (FIA-IRR) 11 July 2022. 1 Rec ijs Offj on 1Au ugust 2024

14/F The 5EC Headquarters, 7907 Makati Avenue (+63 2) 818 82260 or (+63 2) 8818-5348 www.sec.gov.ph| ogc_picc@sec.gov.ph Salcedo Village, Bel-air, Makati City s Rhetnian N I509004:205 Man OA

Page Z of 2

Court enumerated the characteristics of a representative office, to wit: In the case of Commissioner of Internal Revenue v. Shinko Electric Industries Co. Ltd.3, the Supreme

a] It is fully subsidized by its head office;

b) It deals directly with the clients of its parent company:

c) It undertakes activities such as but not limited to information dissemination, promotion of the parent company's products as well as quality control of products: and

d) It does not derive income in the Philippines.

In a previous opinion, the Commission opined:4

the afore-quoted definition should, pursuant to the principle of ejusdem generis, be interpreted to mean that any permissible act of a representative office should be akin to or resemble the same kind or class as parent company, or any other passive act that does not involve the earning of any income. To hold otherwise country. Where the law does not distinguish, neither should we distinguish.5 Thus, the second sentence of those information dissemination and promotion of the company's products, or quality control for the would run counter to the very nature of a representative or liaison office." "The letter of the law is very clear that a representative office car not derive any income from the host

separate from its parent company. Unlike a Regional or Area Headquarters (RHQ) and a Regional Operating Headquarters (ROHQ), however, a representative office could deal directly with the parent company's clients, including those outside the Philippines as the same is not prohibited, but not with its affiliates, activities in the Philippines. branches, or subsidiaries.7 However, a representative office is forbidden to engage in income-producing A representative office is an extension of a foreign corporation and does not have a legal personality

directly with its parent company's clients inside and outside the Philippines as long as its activities relate to information dissemination, promotion, and quality control of its parent company's products and does not derive income in the Philippines and is fully subsidized by its head office. Applying the foregoing discussion, the representative office in the Philippines is allowed to deal

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

Please be guided accordingly.

y truly yours

FEAY ROMUALD C. PADILLA

Ge eral Counspl

3 G.R. No. 226287, July 06, 2021 4 SEC Opinion No. 16-20 dated 25 August 2016 addressed to Atty. Gilbert Mario A. De la Cruz 5 Landbank v. De Leon, 437 Phil. 324 (2002) 6 Miranda v. Abaya, 370 Phil.64Z (1999) s Section 7, SEC MC No. 15 Series of 2003, 16 December 2003. See supra note 4.

14/F The SEC Headquarters,7907 Makati Avenue 8 OAC

www.sec.gov.phl ogc_picc@sec.gov.ph (+63 2) 818 82260 or (+63 2) 8818-5348 Salcedo Village, Bel-air, Makati City TdVRhe nafid 130 50D1 215