Legal basis and relationship to EO 120
- Executive Order No. 120 (August 19, 1993) directs the adoption of countertrade as a supplemental tool for the importation or procurement of foreign capital equipment, machinery, products, goods and services of the National Government.
- The Circular governs the evaluation, review, approval, and implementation of offset arrangements undertaken pursuant to Executive Order No. 120 and its IRR (signed November 14, 1994).
- E.O. 120 and its IRR are deemed incorporated and adopted by reference into PITC Memorandum Circular No. CT-95.1/01.
- The Circular functions as a binding supplement to the IRR.
Policy and objectives of offsets
- Offsets are intended to enhance the industrialization and technological development of the country.
- Offsets are intended to encourage investments, technology transfer, research and development, and related activities.
- Offsets are intended to provide the environment and infrastructure needed for Philippine companies to achieve global product competitiveness.
- Offsets are intended to correct imbalances in foreign exchange flows.
Offset eligibility and covered transaction types
- Offsets under the Circular may be undertaken in the forms of Direct or Indirect offsets.
- A Direct offset exists when the offset is directly related to the capital equipment, machinery, goods, or services imported or procured by the Philippine government.
- An Indirect offset exists when the offset is not directly related to the capital equipment, machinery, goods, or services imported by the Philippine government.
- Eligible offset activities include Foreign Investments, Technology Transfer, Research and Development, Training and Skills Upgrade, Donations/Grants, Environmental Projects, and other similar transactions submitted to PITC for prior evaluation and approval.
Foreign investments: definitions, exclusions, eligibility
- Foreign investments mean 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 the Bangko Sentral ng Pilipinas and the Board of Investments, with valuation and appraisal of assets other than foreign exchange.
- Foreign investments include both original and additional investments.
- Foreign investments may take the form of cash or assets/properties.
- The following are excluded and shall not be considered foreign investments within the Circular’s framework:
- Receipt of stock dividends by all stockholders of a new corporation on a pro-rata basis.
- Ownership of bonds, including income bonds, debentures, notes, or other evidences of indebtedness.
- Purchase of stock options or stock warrants until the holder exercises the option and actually acquires stock from the corporation.
- Eligible beneficiaries for foreign investments are:
- Pioneer Enterprises, expressly defined and enumerated in E.O. 226 and the current Investment Priorities Plan (IPP) of the BOI.
- Non-Pioneer Enterprises, expressly defined and enumerated in E.O. 226 and the current IPP of the BOI.
- Investments in areas/activities not listed in the above and not specifically identified in the IPP may be considered only on a case-to-case basis subject to PITC guidelines determined by PITC.
- Foreign investment eligibility as offsets requires all of the following:
- The investments must come from a foreign-based institution or entity.
- If made in cash, funds must not be sourced or borrowed from the local Philippine banking system but from overseas.
- If made in personal property (other than cash), the property must be brand-new unless PITC approves in writing.
- The investment evidenced by stock certificates or similar instruments must not be withdrawn, transferred, or assigned to another firm or entity by the original investor within five (5) years from the date of investment, except with the prior express written approval of PITC and the Philippine beneficiary.
- An Undertaking to that effect must be executed by the original investor upon approval of the investment proposal by PITC.
- The investment must comply with E.O. 226 and the current IPP, including the ownership requirements for registered enterprises.
Technology transfer, R&D, training, and donations
- Technology Transfer is the transfer to a Philippine firm, agency, or institution of specialized technical knowledge related to processes or products not otherwise available in the Philippines on normal commercial terms.
- Eligible technology transfer arrangements include:
- Patents, formulae, technological rights or processes, licensing or know-how agreements, technical data packs, software, continuing access to current overseas expertise or data, more particularly in areas listed in Annex “A”.
- Transfer of equipment and resources not available in the Philippines under normal commercial terms.
- Other forms of technology transfer defined and/or prescribed by the Department of Science and Technology (DOST).
- Technology transfer eligibility as offsets requires:
- Appropriate written contracts/documents that are duly registered/approved by the Bureau of Patents, Trademarks and Technology Transfer.
- The arrangements must result in capability of the Philippine beneficiary to locally manufacture, manage, design, improve and/or utilize a new product or process, certified by the Philippine beneficiary.
- The technology or process transferred must not be normally available in the Philippines.
- Beneficiaries must be Filipinos or Philippine companies duly licensed or registered under Philippine law.
- Research and Development (R&D) eligibility requires:
- R&D must be directed toward enhancement, improvement, advancement, and/or efficiency of Philippine industries, products, services, and/or environment.
- Areas eligible for R&D include those in the same eligible areas as foreign investments; other R&D areas require PITC written approval on a case-to-case basis.
- R&D must be initiated and substantially supported/financed by a foreign-based supplier/contractor.
- R&D must be associated with a scientific or technological activity preferably in the export sector and falling within the Science and Technology Agenda for National Development.
- The R&D supplier/contractor must ensure results are turned over to and owned by the Philippine beneficiary, and if commercially viable, exploited under normal commercial terms for the benefit of the Philippine beneficiary, with normal commercial terms incorporated in contracts/documents submitted to PITC.
- R&D must utilize or be conducted in collaboration with local Philippine firms and institutions, including government-owned manufacturing or research establishments or laboratories.
- R&D must be undertaken in accordance with DOST guidelines.
- Training and Skills Upgrade eligibility requires:
- Programs must not be available in the Philippines.
- Programs must be initiated and substantially supported/financed by a foreign-based supplier.
- Training/skills upgrade must disseminate scarce, new, or advanced technological or scientific knowledge or processes, particularly in areas listed in Annex “A”.
- Training/skills upgrade must be applicable to the Philippine setting/environment.
- Beneficiaries must submit post-training/skills upgrade reports to PITC, duly certified by the head of the office concerned.
- Donations/Grants eligibility includes:
- Donations or grants for educational, scientific, technological, research, social and environmental development programs/projects, including activities listed in C.1.4.
- Donations or grants may be in the form of cash or property.
- Eligibility requires:
- Donations/grants come from foreign-based institutions.
- If in foreign currency (cash): sourced from outside the Philippines and inwardly remitted to the Philippines.
- If in property: appraised, evaluated, and approved by the Philippine beneficiary.
- Beneficiaries may be government or private institutions (including Non-governmental Organizations) duly organized and existing under Philippine law.
- Donations/grants must be made directly to the Philippine beneficiaries.
- Donations/grants must be evidenced by appropriate documents/deeds submitted to PITC, together with a certification from Philippine beneficiaries evidencing receipt of funds or property.
Environmental projects eligibility rules
- Environmental Projects are projects directed toward preservation, rehabilitation, or development of the country’s ecological balance and the rational use of resources to attain sustainable development, as approved/endorsed by the Department of Environment and Natural Resources (DENR).
- Eligible environmental projects include:
- Rehabilitation of degraded natural habitats within national parks or protected areas.
- Watershed rehabilitation and reforestation activities.
- Air, water and soil quality management projects, including air and water pollution control projects.
- Solid and liquid waste disposal/recycling projects.
- Introduction or development of renewable energy sources (i.e., solar energy and wind energy).
- Projects analogous to the foregoing expressly endorsed/approved by DENR.
- Environmental project eligibility requires:
- Proposals must be duly endorsed/approved for implementation by DENR.
- Projects must be initialed and funded by foreign-based institutions from overseas sources.
- Projects must be undertaken in close coordination with DENR and local authorities of targeted areas.
- Projects are deemed completed/accomplished only after DENR issues the appropriate certification, which must be submitted to PITC.
Approval submission, valuation, and multipliers
- All offset proposals of foreign suppliers of covered government agencies or offices must be submitted to PITC for evaluation and approval not later than five (5) working days after selection of the foreign suppliers, unless PITC extends the period.
- Eligible offsets must be valued based on the criteria in the Circular and then multiplied using Basic Multipliers and, where applicable, Incremental Multipliers added to the Basic Multiplier.
- Where an eligible offset falls within two or more categories of offsets, the Circular requires application of the HIGHER Basic Multiplier, without considering any incremental multiplier.
- Incremental multipliers may only be added if there is already a Basic Multiplier for the offset category; where no offset activity has a Basic Multiplier, no incremental multiplier may be applied.
- Foreign investments valuation requires:
- Valuation based on foreign currency-denominated capitalization actually put into an eligible enterprise, whether in cash or assets, original or additional.
- Basic Multiplier depends on the enterprise type:
- Pioneer (P): x4
- Non-Pioneer (NP): x2
- Incremental multipliers may be added per Annex “B”.
- Technology transfer valuation requires:
- Valuation based on actual US$ costs (or equivalent in other foreign currency) of the transfer or transaction value.
- Basic Multiplier of 3x the technology transfer value.
- Incremental multipliers may be added per Annex “B”.
- R&D valuation requires:
- Valuation based on actual US$ costs (or equivalent in other foreign currency) incurred for the R&D project.
- Basic Multiplier of 3x the R&D project value.
- No incremental multiplier may be applied or added for R&D.
- Training and skills upgrade valuation requires:
- Valuation based on actual costs of training/skills upgrade, including travel and living expenses incurred by the overseas supplier.
- Basic Multiplier of 3x the actual costs of the program.
- No incremental multiplier may be added or applied for this category.
- Donations/grants valuation requires:
- Valuation based on the US$ value (or equivalent in other foreign currency); if property, appraised market value is used.
- Basic Multiplier equivalent to 2 X the value.
- No incremental multiplier may be applied or added for this category.
- Environmental projects valuation requires:
- Valuation based on actual US$ costs (or equivalent in other foreign currency) of the projects.
- Basic Multiplier of 3 x the project value.
- No incremental multiplier may be applied or added for this category.
- For “Others,” valuation and multipliers are determined by PITC on a case-to-case basis.
Incremental multipliers and preferred areas cap
- Incremental Multipliers may be applied/added to the Basic Multiplier of these offset categories: Foreign Investments, Technology Transfer, and Donations or Grants.
- Incremental multipliers apply only if the offsets under these categories are undertaken or pursued in one or more preferred areas enumerated in Annex “B”.
- Preferred areas and incremental additions are:
- Export Winners identified in the current IPP or enterprises engaged in non-traditional exports specified in the current IPP, provided at least 70% of production is for the export market: Basic Multiplier + 2.
- Less Developed Areas (LDA’s) identified in the current IPP: Basic Multiplier + 2.
- Areas outside Metro Manila (other than LDA’s): Basic Multiplier + 1.
- Rehabilitation, expansion or modernization projects identified in the current IPP: Basic Multiplier + 1.
- Where offsets are undertaken or pursued in more than one preferred area listed in Annex “B”, the Circular caps total multipliers (basic + incremental) at not exceed 6 X.
Annex A eligible areas list
- Technology transfer and training/skills upgrade programs use the eligible areas listed in Annex “A.”
- Archipelagic Geography eligible areas include Mariculture, Aquaculture, and Maritime Industries.
- Natural Resources eligible areas include Ecosystem Farming, Geothermal Technology, Renewable Energy Technologies, and Jewelry.
- Applied Sciences eligible areas include Biotechnology, Medical/health professionals, Agribusiness, and Management.
- Ethnolinguistic and Religious Diversity eligible areas include Plural Development Processes and Tourism, and Cross-cultural Communications.
- Educational Infrastructure eligible areas include Soft or Behavioral Technologies, HRD tools, Group Dynamic Techniques, Computer Software, and Entertainment.
- Population eligible areas include Conflict Management and Community Development Tools.