Legal basis and policy intent
- The circular implements banking of offset credits under E.O. 120, s. 1993 and its Implementing Rules and Regulations (IRR).
- The circular states that banking of offset credits awarded to a foreign supplier (or its designated countertrader) for offset activities under the Philippines Offsets Priorities Plan will be allowed to facilitate investment projects, technology transfer, training, research, and other projects vital to the Philippine economy.
- The circular provides that counterpurchase activities are not eligible for banking of credits.
Key defined terms
- “Bankable or Eligible Offset Credits” refers to the offset credits referred to in Section 3.1.1.
- “Banking Approval Certificate” means the clearance issued by PITC to a foreign supplier (or countertrader) to proceed with implementation of the proposed offset project.
- “Certificate of Banked (Forward) Credits” means the certification issued by PITC accrediting completed offset projects to be applied against future offset obligations with the Philippine Government.
- “Forward Credits” means offset credits held by a foreign supplier or its designated countertrader, accredited by PITC (as the Philippine Government’s countertrade crediting office under the IRR) and substantiated by a Certificate/s of Banked Credits issued by PITC for use against future offset obligations with the Philippine Government under the circular’s conditions.
- “Offsets Priorities Plan” means the Philippines Offsets Priorities projects contained in the Armed Forces of the Philippines’ Terms of Reference for the Evaluation of Countertrade Proposals (AFP-TOR), drawn from the Investment Priorities Plan (IPP) of the Board of Investments for 1997 and onwards, made part of the Invitation to Bid (ITB) issued by the AFP-BANC and the PNP-BANC.
- “Offset Credits” means the value claimed by and awarded to a foreign supplier (or its designated countertrader) once the foreign supplier or countertrader discharges/performs the amount of its offset obligation/commitment under the Philippines Offset Priorities Plan and E.O. 120, s. 1993 and its IRR.
Scope: who may bank, and what counts
- Banking of offset credits under E.O. 120, s. 1993 and its IRR applies to offset credits under the Philippines Offset Priorities Plan.
- Banking covers only (a) excess offset credits arising from an existing offset obligation under a Supply Contract with the Philippine Government represented by the Armed Forces of the Philippines or the Philippine National Police, or (b) offset credits awarded in advance of a supply contract with the Philippine Government.
- Counterpurchase activities are not eligible for banking of credits.
- The holder of a Certificate of Banked Credits is the only party entitled to apply/use the banked credits against future offset obligations with the Philippine Government under the circular’s guidelines.
- Only the countertrader that actually performed the offset obligations may apply/use the bankable offset credits for future offset obligations; the foreign supplier is not entitled to avail of such bankable offset credits.
Banking approval, validity periods, and core prohibitions
- A foreign supplier or countertrader is given only one (1) year from the date of issue of the Banking Approval Certificate to start implementation of the offset project; failure to implement automatically nullifies the certificate, and PITC is authorized to grant approval to another foreign supplier/countertrader to pursue the same project (Section 3.1.2).
- Bankable offset credits may be applied/used against future offset obligations with the Philippine Government only within three (3) years from the date of the Certificate of Banked Offset Credits (Section 3.1.4).
- PITC issues the Certificate of Banked (Forward) Credits only after evaluation and approval of the completed offset project/activity.
- A foreign supplier or its designated countertrader is prohibited from acquiring/obtaining bankable offset credits from a third party (whether for valuable consideration or otherwise) for purposes of applying those credits against its future offset obligations with the Philippine Government (Section 3.1.5).
- A holder of a Certificate of Banked Credits is prohibited from assigning or transferring the credits to another firm or entity for purposes of allowing the assignee/transferee to apply/use them against any offset obligation with the Philippine Government except when the assignee/transferee is a wholly or majority-owned subsidiary or parent company of the holder (Section 3.1.6).
Transfers, completion deadlines, and loss of rights
- Transfers/assignments to a wholly or majority-owned subsidiary or parent company are allowed only if all transfer conditions are met:
- The credits must be used by the assignee/transferee within the three (3) year period (Section 3.1.4).
- The credits may be applied only if the importing government agency/office concerned approves such application.
- The assignee/transferee cannot further transfer or assign the credits to another firm or entity for any reason.
- The transfer/assignment is subject to final approval/acceptance of PITC, which will effect the transfer.
- Any transfer/assignment of bankable offset credits not authorized under the stated conditions has no legal or binding effect on the Philippine Government (Section 3.1.6).
- A foreign supplier or countertrader is given three (3) years from the date of the Banking Approval Certificate to complete implementation of the proposed offset project (Section 3.1.7).
- A grace period of two (2) years may be granted on a case-to-case basis, subject to PITC approval/assessment of the offset project (Section 3.1.7).
- If the foreign supplier or countertrader fails to complete the offset project within the periods given in Section 3.1.7, the Banking Approval Certificate is revoked and no offset credit accrues (Section 3.1.8).
- If the foreign supplier or countertrader fails to win a Supply Contract with any Philippine government agency/office within the validity period established in Section 3.1.4, there is no obligation to refund fees paid for banking of offset credits, and no obligation accrues to PITC or the Philippine Government relative to the credits banked (Section 3.1.9).
Procedures: applications, reviews, and monitoring
- A foreign supplier or countertrader must secure pre-approval to proceed with an offset project to qualify for banking of credits.
- For application for eligibility, the foreign supplier or countertrader must submit to PITC:
- a Letter of Intent/application to bank EXCESS offset credits (where excess is expected from an existing offset obligation) or FORWARD credits (where banking is in anticipation of a supply contract),
- an Offset Project Proposal with a Project Feasibility Study describing the project concept, benefits, project management team, profit distribution, resources required, technical data, and other information enabling PITC to assess viability and acceptability,
- a Company Profile including ownership structure and subsidiaries/affiliates, financial statements for the last 3 years, major business/projects, and highlighting previous offset projects in the Philippines and other countries,
- payment of PITC processing fees of US DOLLARS: ONE THOUSAND ($1000.00) per application.
- PITC must review and, if acceptable, approve the proposed offset project submitted for implementation within at least thirty (30) days from the date of submission of complete documents; PITC may extend the period depending on project complexities and the feedback process.
- PITC’s review/approval entails:
- verifying the proposed offset project is listed/included in the Offsets Priorities Plan,
- consulting with the government office/agency where the supplier expects to win a supply contract and where the offset credit is initially expected to be applied,
- assessing viability in consultations with the Board of Investments (BOI), NEDA, and related industry sectors, and securing endorsement by the pertinent government office/agency for technology transfer, training, or R&D projects,
- securing approval/endorsement of the procuring government agency/office accepting the proposed offset project and allowing banking of credits resulting from the project,
- preparing and releasing the Banking Approval Certificate authorizing implementation of the approved offset project.
- For implementation and monitoring, PITC requires specific post-approval submissions depending on the project type:
Implementation reporting obligations
- For Investment Projects, the foreign supplier/countertrader must submit or comply with:
- a Business Plan and Timetable to develop/operationalize the offset project within 90 days from receipt of the Banking Approval Certificate,
- if it entails a joint venture: identify, negotiate, and finalize the Joint Venture Agreement within six (6) months from submission of the Business Plan; provide PITC the list of prospective partners for PITC assessment; PITC may package the joint venture if requested subject to service fees; PITC acts as witness and receives a copy of the JVA,
- if it is an investment in an existing firm/project without a joint venture: submit nature/details and extent of investment within six (6) months from submission of the Business Plan,
- if a joint venture: register the business venture with the SEC and BOI within ninety (90) days from signing of the Joint Venture Agreement; for non-joint ventures, register within ninety (90) days from signing of the Investment Agreement; furnish PITC copies of Certificates of Registration within five (5) days from release thereof,
- submit a report of remittance of equity investments within sixty (60) days from release of Certificates of Registration with SEC and BOI,
- submit a Quarterly Report of operations for the first two (2) years, and a Semi-Annual Report for the succeeding three (3) years, containing start-up and operational costs, financial reports and cash flows, personnel complement, organizational structure, report on operations including on-going and future projects and contracts, and report on sales and prospective sales.
- For Technology Transfers, Research and Development, Donations, Training and other Offset Projects, the foreign supplier/countertrader must submit or comply with:
- a Business Plan and Timetable to develop/operationalize the offset project within ninety (90) days from the Banking Approval Certificate,
- identify, negotiate, and finalize/sign agreements with the chosen Philippine beneficiary/company within six (6) months from submission of the Business Plan, subject to PITC assessment and approval,
- provide agreements to PITC for witnessing and furnish PITC copies of the signed agreements,
- submit a Quarterly Progress Report for the first two (2) years reckoned from the date of the agreements, and a Semi-Annual Report for the succeeding three (3) years thereafter, each accompanied by the Acceptance Certificate of the offset project recipient/beneficiary.
Accreditation, fees, and issuance of credits
- For investment projects, after completion the foreign supplier/countertrader must file with PITC a Request for Accreditation (for banking purposes) indicating the offset value claimed, and attach a Transaction Summary detailing equity investments supporting the offset value claimed and classifying as cash, property, equipment, or the like.
- The Transaction Summary for investment projects must be supported by certified true copies and documents including:
- certified true copies of wire transfers/remittance representing foreign investment in the offset project,
- summary/list of property or equipment imported into the Philippines and invested/purchased for the project, including FOB/CIF costs and certified copies of importation documents (bills of lading/airway bill, SGS CRF, commercial invoice, payment documents such as Letter of Credit, telegraphic transfer, etc.),
- certified copies of Certificates of title or lease agreements for property/warehouse/office used by the JV company or firm (excluding residential purposes),
- other documents PITC deems necessary to support claimed offset values,
- a Secretary’s Certificate attesting to the Board Resolution approving the total value of equity investments made for the offset project.
- Upon filing of the Request for Accreditation and Transaction Summary for investment projects, the foreign supplier/countertrader must pay PITC monitoring/accreditation fees equal to one percent (1%) of the offset value submitted for accreditation, payable to the PITC Treasury Department, and attach a certified copy of PITC’s Official Receipt; non-payment is a ground to withhold/suspend processing and approval of the accreditation.
- PITC must have at least thirty (30) days to review and process the Request for Accreditation and supporting documents and compute multipliers (where applicable), discussing the multipliers with the foreign supplier/countertrader.
- Upon approval of accreditation for investment projects, PITC issues:
- a Certificate of Banked (Forward) Credits (Annex “B”), and
- a Certificate of Discharge, furnished to the government agency/office whose supply contract the banked credits will be applied.
- For technology transfers, research and development, donations, training, and other offset projects, after completion the foreign supplier/countertrader must file:
- a Request for Accreditation indicating the offset value claimed (Annex “A”), and
- a Transaction Summary detailing accomplishments and breakdown of the offset value claimed for crediting and banking, supported by certified copies of agreements/contracts with the offset project recipient, an Acceptance Certificate (evidencing written approval/acceptance of the completed offset project by the recipient’s governing board or Department Secretary), justification for the offset value claimed, and supporting expenditure documents/receipts.
- For technology transfer/R&D/training-type offset projects, the Transaction Summary must also be supported by certified copies of the Final Report (for R&D studies), Post-Training Report (for training projects), and Technology Transfer Report certified by the Intellectual Property Office with DOST Registration of technology transfer projects, among others as applicable.
- For these non-investment types, PITC monitoring/accreditation fees are also one percent (1%) of the offset value submitted for accreditation, and non-payment is a ground to withhold/suspend processing and approval.
- Upon approval of accreditation for these non-investment types, PITC issues:
- a Certificate of Banked (Forward) Credits (Annex “B”), and
- a Certificate of Discharge furnished to the government agency/office whose supply contract the banked credits will be applied.
PITC recordkeeping and periodic reports
- PITC must maintain a Monitoring Logbook for individual foreign suppliers/countertraders containing records of approved applications for banking of offset credits and progress of accomplishments.
- PITC must maintain a record of Certificates of Banked Credits released/approved for both forward and excess credits, including utilization, applications, and approved transfer/assignments (if any) to qualified affiliates/subsidiaries.
- PITC must submit a Statement of Outstanding Offset Credits reflecting all unused/unapplied offset credits to the foreign supplier/countertrader every six (6) months from the date of release of the Certificate of Banked Credits for completed offset projects.
- PITC must furnish a Performance Report Summary to the foreign supplier/countertrader every six (6) months from the date of release of the Certificate of Banked Credits for on-going offset projects, reflecting progress of accomplishments and expected completion dates.
- The Armed Forces of the Philippines and the Philippine National Police, through their respective Bids and Awards Negotiation Committees, must be furnished copies of the Statement of Outstanding Offset Credits and Performance Report Summary reports submitted under these requirements.
Binding effect as supplement
- The circular is a binding supplement to the IRR and forms integral parts thereof.