Countervailing Duties on Subsidized Imports

Legal basis and amended Omnibus Investments Code

Republic Act No. 8756 amends Book III and adds Chapter II to Book III of Executive Order No. 226 (the Omnibus Investments Code of 1987).
Section 5 amends and renames the former Book III incentives for expatriates as Chapter III, then designates the next incentives portion as Chapter IV.
Section 7 amends Articles 68 to 72 of Book IV on incentives for regional warehouses.
Section 8 repeals Article 73 of Executive Order No. 226.
Section 11 repeals or modifies all inconsistent laws, decrees, orders, rules, regulations, issuances, or parts thereof.

Policy, intent, and institutional implementation

Republic Act No. 8756 establishes a licensing and incentives framework for multinational companies through regional or area headquarters (RHQ), regional operating headquarters (ROHQ), and regional warehouses supplying spare parts and related goods to foreign markets.
Section 3 provides that the Board of Investments issues a favorable recommendation as part of RHQ licensing by the Securities and Exchange Commission.
Section 4 provides that ROHQ licensing requires favorable recommendation of the Board of Investments, with Securities and Exchange Commission and Bangko Sentral ng Pilipinas depending on whether the ROHQ is banking/financial.
Section 9 requires joint rulemaking by specified government agencies for Books III and IV implementation.

Definitions: multinational company, RHQ, ROHQ

Section 2 defines “Multinational Company” as a foreign company or a group of foreign companies with business establishments in two or more countries.
Section 2 defines “Regional or Area Headquarters (RHQ)” as an office whose purpose is to act as an administrative branch of a multinational company engaged in international trade that principally serves as a supervision, communications and coordination center for subsidiaries, branches, or affiliates in the Asia-Pacific Region and other foreign markets, and does not earn or derive income in the Philippines.
Section 2 defines “Regional Operating Headquarters (ROHQ)” as a foreign business entity allowed to derive income in the Philippines by performing qualifying services to affiliates, subsidiaries, or branches in the Philippines, in the Asia-Pacific Region, and in other foreign markets.

Licensing of RHQ: qualification and minimum requirements

Article 58 allows a foreign business entity formed, organized, and existing under laws other than those of the Philippines to establish an RHQ in the Philippines by securing a license from the Securities and Exchange Commission, upon favorable recommendation of the Board of Investments.
Article 58 limits RHQ purpose to supervising, superintending, inspecting, or coordinating the entity’s own affiliates, subsidiaries, or branches in the Asia-Pacific Region and other foreign markets.
Securities and Exchange Commission must issue implementing rules and regulations within thirty (30) days from the effectivity of the Code, while minimum requirements must be complied with by the foreign entity.
Minimum requirements for RHQ licensing include:
- A certification from the Philippine Consulate/Embassy, or a duly authenticated certification from the Department of Trade and Industry or equivalent in the foreign firm’s home country, that the foreign firm is engaged in international trade with affiliates, subsidiaries, or branch offices in the Asia-Pacific Region and other foreign markets.
- A duly authenticated certification from the principal officer authorizing establishment of the RHQ in the Philippines, specifying that:
  - RHQ activities are limited to a supervisory, communications and coordinating center for subsidiaries, affiliates, and branches in the region.
  - RHQ will not derive any income from sources within the Philippines, will not participate in the management of Philippine subsidiaries or branches, and will not solicit or market goods and services on behalf of mother company, branches, affiliates, subsidiaries, or any other company.
  - RHQ must notify the Board of Investments and the Securities and Exchange Commission of decisions to close down or suspend operations at least fifteen (15) days before effecting the closure or suspension.
- An undertaking to remit annually an amount not less than Fifty thousand United States dollars ($50,000) (or its equivalent in other foreign currencies) to cover RHQ operations in the Philippines, with submission requirements:
  - Within thirty (30) days from receipt of the certificate of registration from the Securities and Exchange Commission, submit a certificate of inward remittance from a local bank showing inward remittance of at least $50,000 and conversion to Philippine currency.
  - Annually, within thirty (30) days from the anniversary date of registration, submit proof of inward remittance amounting to at least $50,000 during the past year.
- Any violation by the RHQ of the Omnibus Investments Code, its implementing rules and regulations, other registration terms and conditions, or existing laws constitutes a sufficient cause for cancellation of the license or registration.

Licensing of ROHQ: qualification and qualifying services

Article 59 authorizes a foreign business entity formed, organized, and existing under laws other than those of the Philippines to establish an ROHQ in the Philippines to service its own affiliates, subsidiaries, or branches in the Philippines, the Asia-Pacific Region, and other foreign markets.
ROHQs are allowed to derive income by performing qualifying services enumerated under Article 59(b)(1).
ROHQs of non-banking and non-financial institutions must secure a license from the Securities and Exchange Commission upon favorable recommendation of the Board of Investments; ROHQs of banking and financial institutions must secure licenses from the Securities and Exchange Commission and the Bangko Sentral ng Pilipinas upon favorable recommendation of the Board of Investments.
Securities and Exchange Commission and Bangko Sentral ng Pilipinas must issue implementing rules and regulations within thirty (30) days from the effectivity of the Code.
Minimum requirements for ROHQ licensing include:
- A certification from the Philippine Consulate/Embassy, or duly authenticated certification from the Department of Trade and Industry or equivalent in the foreign firm’s home country, that the foreign firm is engaged in international trade with affiliates, subsidiaries, or branch offices in the Asia-Pacific Region and other foreign markets.
- A duly authenticated certification from the principal officer authorizing establishment specifying that:
  - ROHQ may engage in qualifying services consisting of:
    - General administration and planning;
    - Business planning and coordination;
    - Sourcing/procurement of raw materials and components;
    - Corporate finance advisory services;
    - Marketing control and sales promotion;
    - Training and personnel management;
    - Logistics services;
    - Research and development services, and product development;
    - Technical support and maintenance;
    - Data processing and communication; and
    - Business development.
  - ROHQs are prohibited from offering qualifying services to entities other than affiliates, branches, or subsidiaries declared in their Securities and Exchange Commission registration.
  - ROHQs are prohibited from directly and indirectly soliciting or marketing goods and services on behalf of mother company, branches, affiliates, subsidiaries, or any other company.
  - ROHQ must notify the Board of Investments, the Securities and Exchange Commission, and the Bangko Sentral ng Pilipinas (as the case may be) of closure/suspension decisions at least fifteen (15) days before effecting them.
- An undertaking to initially remit an amount not less than Two hundred thousand United States dollars ($200,000) (or its equivalent in other foreign currencies), with submission requirements:
  - Within thirty (30) days from receipt of the certificate of registration, submit a certificate of inward remittance from a local bank showing inward remittance of at least $200,000 and conversion to Philippine currency.
- Any violation by the ROHQ of the Code, its implementing rules and regulations, other registration terms and conditions, or existing laws constitutes a sufficient cause for cancellation of the license or registration.

Expatriate incentives for RHQ and ROHQ

Article 60 grants foreign personnel of RHQ and ROHQ, their respective spouses, and unmarried children under twenty-one (21) years of age a multiple entry special visa.
The visa issuance is triggered when required documents are submitted, and the issuance must occur within seventy-two (72) hours.
Article 60 sets the multiple entry special visa validity at three (3) years to enter the Philippines.
A responsible officer of the applicant company must submit a duly authenticated certificate that the person is an executive of the applicant company, will work exclusively for the duly licensed RHQ or ROHQ in the Philippines, and will receive salary paid by the headquarters in the Philippines of at least Twelve thousand United States dollars ($12,000) per annum (or equivalent in other foreign currencies).
Admission and stay under Article 60 are coterminous with the visa validity, and the stay is extendible for three (3) years upon submission to the Bureau of Immigration of a sworn certification that:
- the license remains valid and subsisting; and
- the RHQ or ROHQ withheld tax due on compensation and it has been paid to the Bureau of Internal Revenue.
Article 60 exempts these non-immigrants (and their spouses and dependents) from:
- payment of all fees due under immigration and alien registration laws;
- securing alien certificates of registration; and
- obtaining emigration clearance certificates and all types of clearances required by any government department or agency,
- except that upon final departure, the employer must advise in writing the Bureau of Immigration at least five (5) working days prior to departure, and the departing employee must submit a tax clearance from the Bureau of Internal Revenue.

Compensation tax and travel/import incentives

Article 61 imposes a withholding tax of 15% on compensation income of aliens employed by RHQ and ROHQ for each taxable year.
Article 61 computes the tax as 15% of gross income received as salaries, wages, annuities, compensations, remuneration, and emoluments.
Article 61 applies the same 15% tax treatment to Filipinos employed and occupying the same positions as aliens employed by multinational companies, with an option:
- Filipinos may be taxed at either 15% of gross income or at the regular tax rate on taxable income under the National Internal Revenue Code, as amended by Republic Act No. 8424.
Article 62 grants an alien executive of RHQ/ROHQ tax and duty free importation of personal and household effects under Section 105(h) of the Tariff and Customs Code, as amended, and Section 109(I) of the National Internal Revenue Code, as amended.
Article 62 conditions the tax- and duty-free importation by requiring that personal and household effects arrive in the Philippines within ninety (90) days before or after conversion of the alien executive’s admission category to the multiple entry visa issued under this Act.
Article 63 exempts personnel of RHQ/ROHQ and dependents joining them during assignment in the Philippines (as certified by the Board of Investments) from the travel tax imposed under Section 1 of Presidential Decree No. 1183, as amended.

Income, VAT, local taxes, and import incentives

Article 64 provides that RHQs established in the Philippines by multinational companies that do not earn or derive income from the Philippines and act as supervisory, communications, and coordinating centers are not subject to income tax.
Article 64 provides that ROHQs are subject to an income tax rate of ten percent (10%) of taxable income under the National Internal Revenue Code, as amended by Republic Act No. 8424.
Article 64 provides that income derived from Philippine sources by the ROHQ when remitted to the parent company is subject to the tax on branch profit remittances under Section 28(a)(5) of the National Internal Revenue Code.
Article 65 exempts RHQs from value-added tax.
Article 65 provides that the sale or lease of goods and property and the rendition of services to RHQs are subject to a zero percent (0%) VAT rate under the National Internal Revenue Code.
Article 65 subjects ROHQs to ten percent (10%) VAT under the National Internal Revenue Code.
Article 66 provides exemption from all kinds of local taxes, fees, or charges imposed by a local government unit for RHQs and ROHQs, except real property tax on land improvements and equipment.
Article 67 grants RHQs and ROHQs tax and duty free importation of equipment and materials for training and conferences needed and used solely for RHQ/ROHQ functions and not locally available, subject to prior approval of the Board of Investments.
Article 67 requires that sale or disposition of equipment within two (2) years after tax- and duty-free importation requires:
- prior approval of the Board of Investments, and
- prior payment of applicable taxes and duties that were waived in favor of RHQ/ROHQ.
Article 67 entitles RHQs and ROHQs to importation of new motor vehicles subject to payment of corresponding taxes and duties.

Regional warehouses: licensing and allowed activities

Article 68 allows a multinational company organized and existing under laws other than those of the Philippines engaged in international trade that supplies spare parts, components, semi-finished products, and raw materials to distributors/markets in the Asia-Pacific area and other foreign areas to establish regional warehouses in ecozones in the Philippines after securing a license from the Philippine Economic Zone Authority (PEZA).
Article 68 requires that for regional warehouses in ecozones with special charters, the license must be secured from the concerned ecozone authorities.
Article 68 requires that for existing regional warehouses, the license must be secured from the Board of Investments, unless the warehouses choose to relocate inside ecozones.
Article 68 limits regional warehouse activities to serving as a supply depot for storage and related handling of spare parts, components, semi-finished products, and raw materials, including packaging, covering, putting up, marking, labelling, and cutting/altering to customer specification, and mounting/packaging into kits or marketable lots to fill transactions and sales by head offices/parent companies, and storage of locally purchased goods for export abroad.
Article 68 prohibits a regional warehouse from directly engaging in trade, directly soliciting business, promoting any sale, or entering into any contract for the sale or disposition of goods in the Philippines.
Article 68 permits a regional warehouse to withdraw imported goods for delivery to an authorized distributor in the Philippines only if the corresponding taxes, customs duties and charges have been paid by the multinational company’s headquarters upon arrival.
Article 68 treats delivery to the authorized distributor as a sale made by the headquarters (not the warehouse), reflected in a separate book of accounts, and governs the sale by VAT provisions under the National Internal Revenue Code, as amended by Republic Act No. 8424.
Article 68 requires that income from the sale to the distributor be treated as income derived by the headquarters from sources within the Philippines and be subject to corporate income tax of a resident foreign corporation under the National Internal Revenue Code.
Article 68 prohibits warehouse personnel from participating in management of any Philippine subsidiary, affiliate, or branch office other than activities allowed under the Act.
Article 68 makes RHQ or ROHQ personnel responsible for operation of the regional warehouse subject to the Code.
Article 68 requires payment of corresponding license fees and storage fees to the Board of Investments, PEZA, or concerned ecozone authorities (as the case may be) and to the appropriate Collector of Customs.
Article 68 provides an application and jurisdiction/control framework for warehouses outside ecozones:
- Applications must be made in writing and must describe premises, location, capacity, and the purpose for building use.
- Supervisory responsibility for warehouses outside ecozones is vested on the Bureau of Customs and Board of Investments (and for warehouses within ecozones on PEZA or concerned ecozone authorities and the Bureau of Customs for joint aspects).
- The Board of Investments/PEZA/ecozone authorities, in consultation with the Regional Director of Customs of the district, may authorize establishment after premises examination without complying with requirements of other government bodies, if specific conditions are met:
  - stored articles are spare parts, components, semi-finished products, raw materials, and related items including packaging/coverings/brands/labels/warehouse equipment for distribution and supply to Asia-Pacific and other foreign markets;
  - entry/importation, storage, or re-export does not involve any dollar outlay from Philippine sources;
  - goods are readily identifiable for re-export, and if locally distributed they are subject to the relevant VAT and local rules on qualified goods distribution;
  - the operator must file an ordinary warehousing bond equal to one hundred percent (100%) of ascertained customs duties on imported articles, without prejudice to filing a general warehousing bond in lieu of the ordinary warehousing bond; and
  - withdrawals for domestic use outside ecozones require approval and are subject to withdrawal percentage limits.
Article 68 sets withdrawal limits for domestic use outside ecozones:
- Existing warehouses may not withdraw exceeding thirty percent (30%) of the value of goods they brought in for any given year, with taxes and duties paid upon arrival of imported goods.
- PEZA or concerned ecozone authorities may allow withdrawal exceeding 30% under terms and conditions imposed by them.

Warehouse tax treatment and customs rules

Article 69(a) provides that imported spare parts, components, semi-finished products, raw materials, and other items including packages, coverings, brands, labels, and warehouse equipment allowed by the Board of Investments/PEZA/ecozone authorities for use exclusively on goods stored in the regional warehouse and re-exported directly therefrom under supervision of the Collector of Customs concerned are not subject to:
- customs duty,
- internal revenue tax,
- export tax, and
- local taxes,
  subject to the provisions of the Code and guidelines.
Article 69(b) provides that any qualified goods taken from the regional warehouse to the local market in accordance with implementing guidelines are subject to income taxes, customs duties, taxes, and other charges under the rules governing imported merchandise, and required commercial invoices from head offices/parent companies must be submitted to the Collector of Customs.
Article 69(b) provides that using qualified goods sold, bartered, hired, or used for purposes other than intended without prior compliance with implementing guidelines and without prior payment of duty/tax/charges due at the time of entry constitutes:
- forfeiture; and
- a fraudulent practice against customs revenue punishable under Section 3602, as amended, of the Tariff and Customs Code.
Article 69(b) provides that a sale pursuant to a judicial order is not covered by the preceding forfeiture and fraudulent-practice proviso, while remaining subject to payment of duties, taxes, and other charges.
Article 70 establishes the maximum storage period for warehousing:
- Articles duly entered for warehousing may remain in regional warehouses for two (2) years from time of transfer.
- The period may be extended by the Board of Investments for an additional one (1) year upon payment of the corresponding storage fee on unexported articles.
- Any withdrawal/release/removal contrary to the guidelines is subject to forfeiture under Article 69(b).
Article 71 requires joint special rules and regulations by the Board of Investments, PEZA, concerned ecozone authorities, and the Bureau of Customs covering receiving, handling, custody, entry, examination, classification, delivery, storage, warehousing, manipulation and packaging, release for re-exportation or for importation and delivery to a Philippine distributor, and safekeeping/recording/inventory/liquidation of qualified goods, formulated in consultation with applicants/operators, notwithstanding any existing law.

License cancellation and monetary penalties

Article 72 provides that a willful violation by an RHQ or ROHQ that established regional warehouses contrary to or in violation of existing laws and implementing guidelines constitutes a sufficient cause for cancellation of its license or registration, in addition to penalties provided in Article 69(b).
Article 72 empowers the Board of Investments, PEZA, or concerned ecozone authorities (as the case may be) to impose fines in amounts that are just and reasonable for late submission or non-compliance by registered enterprises with reporting and other requirements under the Code and its implementing rules and regulations.

Implementing rules, separability, and repeals

Section 9 requires joint issuance of implementing rules and regulations by the Department of Trade and Industry, in coordination with Department of Foreign Affairs, Board of Investments, Philippine Economic Zone Authority, ecozone authorities with special charters, Securities and Exchange Commission, Bureau of Internal Revenue, Bureau of Customs, Bangko Sentral ng Pilipinas, Philippine Tourism Authority, and Bureau of Immigration.
Section 9 requires that the implementing rules and regulations take effect thirty (30) days after publication in at least two (2) national newspapers of general circulation in the Philippines.
Section 10 provides a separability clause protecting remaining valid provisions if any part is declared unconstitutional.
Section 11 repeals or modifies inconsistent laws, decrees, orders, rules, regulations, or issuances.
Section 8 repeals Article 73 of the Omnibus Investments Code and inserts a new Article 73 on implementing rules and regulations.