QuestionsQuestions (PITC MEMORANDUM CIRCULAR NO. CT-95.1/01)
The guidelines are promulgated pursuant to Executive Order (E.O.) 120 dated August 19, 1993 and its Implementing Rules and Regulations (IRR) signed on November 14, 1994, which adopt countertrade as a supplemental tool for importation/procurement of foreign capital equipment, machinery, products, goods, and services by the National Government and covered entities. The purpose is to govern evaluation, review, approval, and implementation of offset arrangements under E.O. 120 and the IRR.
Offsets are Direct when the offset is directly related to the capital equipment, machinery, goods, or services imported by the Philippine government. Otherwise, they are Indirect. The classification matters because eligible offset activities and evaluation apply within the framework of the IRR and E.O. 120, and valuation/multipliers depend on the offset category.
Foreign investments are equity investments owned by a Non-Philippine national (in a Philippine enterprise), made in the form of foreign exchange or other assets actually transferred to the Philippines, registered with BSP and BOI for assessment/appraisal. Key eligibility includes: investment must come from a foreign-based institution/entity; if cash, funds must not be sourced/borrowed from Philippine banking system but from overseas; non-cash personal property must be brand-new unless PITC approves otherwise; investment must not be withdrawn/transferred/assigned within 5 years unless with prior express written approval of PITC and the Philippine beneficiary, supported by an undertaking; and compliance with E.O. 226 and current BOI IPP (including ownership requirements).
Excluded are: (i) receipt of stock dividends by all stockholders of a new corporation pro-rata; (ii) ownership of bonds (including income bonds, debentures, notes, or other evidences of indebtedness); and (iii) purchase of stock options or stock warrants until the holder exercises the option and actually acquires stock from the corporation.
Eligible beneficiaries include (1) Pioneer Enterprises expressly defined and enumerated in E.O. 226 and the current BOI Investment Priorities Plan (IPP), and (2) Non-Pioneer Enterprises expressly defined and enumerated in E.O. 226 and the current BOI IPP. Areas/activities not listed may be considered only case-to-case, subject to PITC determination.
Technology transfer is eligible when it transfers specialized technical knowledge related to processes or products not otherwise available in the Philippines on normal commercial terms, and the arrangement must: be covered by appropriate written contracts/documents duly registered/approved by the Bureau of Patents, Trademarks and Technology Transfer; enable the Philippine beneficiary to locally manufacture/manage/design/improve/utilize a new product/process (certified by the beneficiary); involve technology/process not normally available in the Philippines; and beneficiaries must be Filipinos or Philippine companies duly licensed/registered in accordance with Philippine law.
Technology transfer is valued based on actual US$ (or equivalent other foreign currency) costs of the transfer/transaction value. The basic multiplier is 3x the value of the technology transfer. Incremental multipliers may be added depending on Annex B, subject to conditions.
R&D offsets must enhance, improve, advance, and/or improve efficiency of Philippine industries/products/services/environment. Eligibility requires: R&D initiated and substantially financed by a foreign-based supplier/contractor; associated with scientific/technological activity preferably in export sector and falling within DOST’s Science and Technology Agenda; results turned over to and owned by Philippine beneficiary (with commercially viable exploitation under normal terms, reflected in contracts/documents submitted to PITC); collaboration with local Philippine firms/institutions (including government-owned establishments/labs); and compliance with DOST guidelines.
No. For R&D, the circular states the basic multiplier is 3x the value of the R&D project, and “No Incremental Multiplier shall be applied/added to this offset category.”
They must not be available in the Philippines; must be initiated and substantially supported/financed by a foreign-based supplier; must disseminate scarce/new/advanced technological or scientific knowledge or processes (particularly areas in Annex A); must be applicable to Philippine setting/environment; and beneficiaries must submit post-training/skills upgrade reports to PITC, duly certified by the Head of the concerned office.
Valuation is based on actual costs of training/skills upgrade, including travel and living expenses incurred by the overseas supplier. Basic multiplier is 3x those costs. The circular also states “No Incremental Multiplier shall be added/applied to this offset category.”
Donations/grants must come from foreign-based institutions. If in foreign currency, funds must be sourced from outside the Philippines and inwardly remitted; if property, appraised/evaluated/approved by the Philippine beneficiary. They must be made directly to Philippine beneficiaries (government or private, including NGOs duly organized under Philippine laws), and must be evidenced by appropriate documents/deeds submitted to PITC, together with a certification from the Philippine beneficiary evidencing receipt of funds/property.
The valuation uses US$ value (or equivalent) of the donation/grant; if property, appraised market value. Basic multiplier is 2x the value. The circular states no incremental multiplier shall be applied/added to this category.
Environmental Projects are directed to preservation/rehabilitation/development of ecological balance and rational use of resources to attain sustainable development as approved/endorsed by DENR. Eligibility requires DENR endorsement/approval for implementation; projects must be initially funded by foreign-based institutions from overseas sources; carried out in close coordination with DENR and local authorities; and deemed completed only after DENR issues appropriate certification submitted to PITC.
Valuation is based on actual US$ (or equivalent) costs of the projects. Basic multiplier is 3x. The circular states no incremental multiplier shall be applied/added.
The circular provides that if the eligible offset falls within two or more categories, the Basic Multiplier to be applied shall be the HIGHER multiplier without considering any incremental multiplier, if applicable.
Incremental multipliers may be applied only if there is already a Basic Multiplier for the offset activity. Annex B limits conditions: incremental multipliers are applicable only when offsets are undertaken in preferred areas (Export winners/non-traditional exports with at least 70% export market; Less Developed Areas; areas outside Metro Manila not LDA; and certain IPP rehab/expansion/modernization projects). If offsets are pursued in more than one preferred area, total multipliers (basic + incremental) must not exceed 6x.
Pursuant to E.O. 120 and the IRR, all offset proposals of foreign suppliers must be submitted to PITC for evaluation and approval not later than five (5) working days after the selection of the said foreign suppliers, unless PITC extends the period.
The circular states that the provisions of E.O. 120 and its IRR are deemed incorporated and adopted by reference to the circular, and the circular is considered a binding supplement to the IRR. It also takes effect immediately.