1.

Absorption of Bacolod
REGISTRATION

Corporation Code

Section 76. Plan or merger of consolidation. – Two or more corporations may merge
into a single corporation which shall be one of the constituent corporations or may
consolidate into a new single corporation which shall be the consolidated corporation.

The board of directors or trustees of each corporation, party to the merger or

consolidation, shall approve a plan of merger or consolidation setting forth the following:

1. The names of the corporations proposing to merge or consolidate, hereinafter

referred to as the constituent corporations;
2. The terms of the merger or consolidation and the mode of carrying the same into
effect;
3. A statement of the changes, if any, in the articles of incorporation of the surviving
corporation in case of merger; and, with respect to the consolidated corporation in
case of consolidation, all the statements required to be set forth in the articles of
incorporation for corporations organized under this Code; and
4. Such other provisions with respect to the proposed merger or consolidation as
are deemed necessary or desirable.

Section 77. Stockholder’s or member’s approval. – Upon approval by majority vote of

each of the board of directors or trustees of the constituent corporations of the plan of
merger or consolidation, the same shall be submitted for approval by the stockholders or
members of each of such corporations at separate corporate meetings duly called for the
purpose. Notice of such meetings shall be given to all stockholders or members of the
respective corporations, at least two (2) weeks prior to the date of the meeting, either
personally or by registered mail. Said notice shall state the purpose of the meeting and
shall include a copy or a summary of the plan of merger or consolidation. The affirmative
vote of stockholders representing at least two-thirds (2/3) of the outstanding capital stock
of each corporation in the case of stock corporations or at least two-thirds (2/3) of the
members in the case of non-stock corporations shall be necessary for the approval of
such plan. Any dissenting stockholder in stock corporations may exercise his appraisal
right in accordance with the Code: Provided, That if after the approval by the stockholders
of such plan, the board of directors decides to abandon the plan, the appraisal right shall
be extinguished.

Any amendment to the plan of merger or consolidation may be made, provided such
amendment is approved by majority vote of the respective boards of directors or trustees
of all the constituent corporations and ratified by the affirmative vote of stockholders
representing at least two-thirds (2/3) of the outstanding capital stock or of two-thirds (2/3)
of the members of each of the constituent corporations. Such plan, together with any
amendment, shall be considered as the agreement of merger or consolidation.
Section 78. Articles of merger or consolidation. – After the approval by the
stockholders or members as required by the preceding section, articles of merger or
articles of consolidation shall be executed by each of the constituent corporations, to be
signed by the president or vice-president and certified by the secretary or assistant
secretary of each corporation setting forth:

1. The plan of the merger or the plan of consolidation;

2. As to stock corporations, the number of shares outstanding, or in the case of non-
stock corporations, the number of members; and
3. As to each corporation, the number of shares or members voting for and against
such plan, respectively.

Section 79. Effectivity of merger or consolidation. – The articles of merger or of

consolidation, signed and certified as herein above required, shall be submitted to the
Securities and Exchange Commission in quadruplicate for its approval: Provided, That in
the case of merger or consolidation of banks or banking institutions, building and loan
associations, trust companies, insurance companies, public utilities, educational
institutions and other special corporations governed by special laws, the favorable
recommendation of the appropriate government agency shall first be obtained. If the
Commission is satisfied that the merger or consolidation of the corporations concerned is
not inconsistent with the provisions of this Code and existing laws, it shall issue a
certificate of merger or of consolidation, at which time the merger or consolidation shall
be effective.

If, upon investigation, the Securities and Exchange Commission has reason to believe
that the proposed merger or consolidation is contrary to or inconsistent with the provisions
of this Code or existing laws, it shall set a hearing to give the corporations concerned the
opportunity to be heard. Written notice of the date, time and place of hearing shall be
given to each constituent corporation at least two (2) weeks before said hearing. The
Commission shall thereafter proceed as provided in this Code.

Mindanao Savings and Loan Association, Inc. v. Edward Willkom, G.R. No. 178618,
October 11, 2010

The steps necessary to accomplish a merger or consolidation, as provided for in Sections

76, 77, 78, and 79 of the Corporation Code, are:

(1) The board of each corporation draws up a plan of merger or consolidation. Such
plan must include any amendment, if necessary, to the articles of incorporation of
the surviving corporation, or in case of consolidation, all the statements required in
the articles of incorporation of a corporation.

(2) Submission of plan to stockholders or members of each corporation for approval.

A meeting must be called and at least two (2) weeks notice must be sent to all
stockholders or members, personally or by registered mail. A summary of the plan
 must be attached to the notice. Vote of two-thirds of the members or of stockholders
representing two-thirds of the outstanding capital stock will be needed. Appraisal
rights, when proper, must be respected.

(3) Execution of the formal agreement, referred to as the articles of merger or

consolidation, by the corporate officers of each constituent corporation. These take
the place of the articles of incorporation of the consolidated corporation, or amend
the articles of incorporation of the surviving corporation.

(4) Submission of said articles of merger or consolidation to the SEC for approval.

(5) If necessary, the SEC shall set a hearing, notifying all corporations concerned at
least two weeks before.

(6) Issuance of certificate of merger or consolidation.

TAXABILITY

National Internal Revenue Code

SEC. 27. Rates of Income tax on Domestic Corporations. -

(A) In General. - Except as otherwise provided in this Code, an income tax of thirty-five
percent (35%) is hereby imposed upon the taxable income derived during each taxable
year from all sources within and without the Philippines by every corporation, as defined
in Section 22(B) of this Code and taxable under this Title as a corporation, organized in,
or existing under the laws of the Philippines: Provided, That effective January 1, 2009,
the rate of income tax shall be thirty percent (30%).

In the case of corporations adopting the fiscal-year accounting period, the taxable income
shall be computed without regard to the specific date when specific sales, purchases and
other transactions occur. Their income and expenses for the fiscal year shall be deemed
to have been earned and spent equally for each month of the period.

The corporate income tax rate shall be applied on the amount computed by multiplying
the number of months covered by the new rate within the fiscal year by the taxable income
of the corporation for the period, divided by twelve.

SEC. 29. Imposition of Improperly Accumulated Earnings Tax. -

(A) In General. - In addition to other taxes imposed by this Title, there is hereby imposed
for each taxable year on the improperly accumulated taxable income of each corporation
described in Subsection B hereof, an improperly accumulated earnings tax equal to
ten percent (10%) of the improperly accumulated taxable income.

(B) Tax on Corporations Subject to Improperly Accumulated Earnings Tax. -

(1) In General. - The improperly accumulated earnings tax imposed in the preceding
Section shall apply to every corporation formed or availed for the purpose of
 avoiding the income tax with respect to its shareholders or the shareholders of any
other corporation, by permitting earnings and profits to accumulate instead of being
divided or distributed.
(2) Exceptions. - The improperly accumulated earnings tax as provided for under
this Section shall not apply to:
(a) Publicly-held corporations;
(b) Banks and other nonbank financial intermediaries; and
(c) Insurance companies.

(C) Evidence of Purpose to Avoid Income Tax. -

(1) Prima Facie Evidence. - the fact that any corporation is a mere holding company
or investment company shall be prima facie evidence of a purpose to avoid the tax
upon its shareholders or members.
(2) Evidence Determinative of Purpose. - The fact that the earnings or profits of a
corporation are permitted to accumulate beyond the reasonable needs of the
business shall be determinative of the purpose to avoid the tax upon its shareholders
or members unless the corporation, by the clear preponderance of evidence, shall
prove to the contrary.

(D) Improperly Accumulated Taxable Income. - For purposes of this Section, the term
'improperly accumulated taxable income' means taxable income adjusted by:
(a) Income exempt from tax;
(b) Income excluded from gross income;
(c) Income subject to final tax; and
(d) The amount of net operating loss carry-over deducted;
And reduced by the sum of:
(a) Dividends actually or constructively paid; and
(b) Income tax paid for the taxable year.
Provided, however, that for corporations using the calendar year basis, the accumulated
earnings tax shall not apply on improperly accumulated income as of December 31, 1997.
In the case of corporations adopting the fiscal year accounting period, the improperly
accumulated income not subject to this tax, shall be reckoned, as of the end of the month
comprising the twelve (12)-month period of fiscal year 1997-1998.

(E) Reasonable Needs of the Business. - For purposes of this Section, the term
'reasonable needs of the business' includes the reasonably anticipated needs of the
business.

LIABILITY

Corporation Code

Section 80. Effects of merger or consolidation. – The merger or consolidation shall

have the following effects:
 1. The constituent corporations shall become a single corporation which, in case of
merger, shall be the surviving corporation designated in the plan of merger; and, in
case of consolidation, shall be the consolidated corporation designated in the plan
of consolidation;

2. The separate existence of the constituent corporations shall cease, except that of
the surviving or the consolidated corporation;

3. The surviving or the consolidated corporation shall possess all the rights,
privileges, immunities and powers and shall be subject to all the duties and liabilities
of a corporation organized under this Code;

4. The surviving or the consolidated corporation shall thereupon and thereafter

possess all the rights, privileges, immunities and franchises of each of the
constituent corporations; and all property, real or personal, and all receivables due
on whatever account, including subscriptions to shares and other choses in action,
and all and every other interest of, or belonging to, or due to each constituent
corporation, shall be deemed transferred to and vested in such surviving or
consolidated corporation without further act or deed; and

5. The surviving or consolidated corporation shall be responsible and liable

for all the liabilities and obligations of each of the constituent corporations in
the same manner as if such surviving or consolidated corporation had itself
incurred such liabilities or obligations; and any pending claim, action or
proceeding brought by or against any of such constituent corporations may
be prosecuted by or against the surviving or consolidated corporation. The
rights of creditors or liens upon the property of any of such constituent
corporations shall not be impaired by such merger or consolidation.

2. PH companies as branches of US company

REGISTRATION (base on requirements provided by SEC website, annex “A”)

Documentary Requirements:

a. Cover sheet;
b. Name Verification Slip
c. Application Form
d. Authenticated copy of Board Resolution
i.Authorizing the establishment of the Branch in the Philippines;
ii.Designating the Resident Agent to whom summons and other legal processes
may be served in behalf of the foreign corporation; and
iii.Stipulating that in the absence of such Agent or upon cessation of its business
in the Philippines, any summons or legal processes may be served to SEC as
if the same is made upon the corporation at its office.
e. Authenticated copy of the Articles of Incorporation/Partnership with an English
translation thereof if in foreign language other than English
f. Financial Statements
i. For those whose home country REQUIRES Audited Financial Statement
(AFS), the applicant shall submit financial statements;
 For the immediately preceding year at the time of filing of the
application
 Audited by an independent Certified Public Accountant of home
country
 Authenticated before the Philippine Consulate/Embassy
If the date of the AFS exceeds the one-year requirement, the applicant shall
submit:
 Authenticated Audited Financial Statements that are available as of
date of filing and the application; and
 Authenticated Unaudited Financial Statements (AUFS) as of date not
exceeding one (1) year immediately prior to the filing of the
application signed by an officer of the foreign corporation
ii. For those whose home country does NOT REQUIRE AFS, the applicant shall
submit financial statements:
 AUFS as of the date not exceeding one (1) year immediately prior to
the filing of the application; and
 Authenticated Certification signed under oath by an officer of a
responsible regulatory institution or by the applicant’s legal counsel
that the applicant is not required to prepare and submit AFS, with
citation of the law or regulation on which it is based. (attach the print
out of the law for verification purposes)
g. Compliance with Financial ratios
 Stock Branch Office

Ratio Formula Benchmark Value

Solvency total assets/total liabilities 1:1

Liquidity current assets/current liabilities 1:1

Debt to Equity total liabilities/equity 3:1

h. Notarized proof of Inward Remittance such as bank certificate of inward remittance of
$200,000, in case of Domestic Market Enterprise, or P5,000.00, in case of Export
Market Enterprise
i. Affidavit of undertaking to change corporate name (not required if already stated in
the Application form)

Post-registration requirement
SEC Memorandum Circular No. 02, Series of 2012 dated May 7, 2012, “Guidelines
on Securities Deposit of Branch Offices of Foreign Corporation”

Section 2. Coverage and Schedule of Posting

This Circular shall apply to all branch offices of foreign corporations duly licensed to do
business in the Philippines that are mandated to deposit securities with the Commission
in accordance with the following schedule:

a. Within 60 days after the issuance of its SEC license, securities within an
actual market value of at least P100,000.00;
b. Additional securities shall be deposited within six (6) months after the end
of the fiscal year indicated in the Financial Statements in the following situations:
i. If the licensee’s gross income within the Philippines for that fiscal
year exceeds P5,000,000.00, additional securities within the an
actual market value equivalent to two percent (2%) of the increase in
said gross income; and
ii. If the actual market value of the securities deposited has decreased
by at least ten percent (10%) from the time it was deposited,
additional securities with an actual market value that would cover the
decease.

TAXATION

National Internal Revenue Code

SEC. 28. Rates of Income Tax on Foreign Corporations. -

(A) Tax on Resident Foreign Corporations. -

(1) In General. - Except as otherwise provided in this Code, a corporation organized,
authorized, or existing under the laws of any foreign country, engaged in trade or
business within the Philippines, shall be subject to an income tax equivalent to thirty-
five percent (35%) of the taxable income derived in the preceding taxable year from
all sources within the Philippines: Provided, That effective January 1, 2009, the rate of
income tax shall be thirty percent (30%).

In the case of corporations adopting the fiscal-year accounting period, the taxable income
shall be computed without regard to the specific date when sales, purchases and other
transactions occur. Their income and expenses for the fiscal year shall be deemed to
have been earned and spent equally for each month of the period.

The corporate income tax rate shall be applied on the amount computed by multiplying
the number of months covered by the new rate within the fiscal year by the taxable income
of the corporation for the period, divided by twelve.
Provided, however, That a resident foreign corporation shall be granted the option to be
taxed at fifteen percent (15%) on gross income under the same conditions, as provided
in Section 27

XXXX

(5) Tax on Branch Profits Remittances. - Any profit remitted by a branch to its head
office shall be subject to a tax of fifteen (15%) which shall be based on the total
profits applied or earmarked for remittance without any deduction for the tax
component thereof (except those activities which are registered with the Philippine
Economic Zone Authority). The tax shall be collected and paid in the same manner as
provided in Sections 57 and 58 of this Code: Provided, that interests, dividends, rents,
royalties, including remuneration for technical services, salaries, wages premiums,
annuities, emoluments or other fixed or determinable annual, periodic or casual gains,
profits, income and capital gains received by a foreign corporation during each taxable
year from all sources within the Philippines shall not be treated as branch profits unless
the same are effectively connected with the conduct of its trade or business in the
Philippines.

LIABILITY

A branch office has no separate legal personality, its liability is considered liability of the
parent corporation.

Philippine Deposit Insurance Corporation v. Citibank, N.A. and Bank of America,

S.T. & N.A., G.R. No. 170290, April 11, 2012\

The Court begins by examining the manner by which a foreign corporation can establish
its presence in the Philippines. It may choose to incorporate its own subsidiary as a
domestic corporation, in which case such subsidiary would have its own separate and
independent legal personality to conduct business in the country. In the alternative, it
may create a branch in the Philippines, which would not be a legally independent
unit, and simply obtain a license to do business in the Philippines.

In the case of Citibank and BA, it is apparent that they both did not incorporate a separate
domestic corporation to represent its business interests in the Philippines. Their Philippine
branches are, as the name implies, merely branches, without a separate legal personality
from their parent company, Citibank and BA. Thus, being one and the same entity, the
funds placed by the respondents in their respective branches in the Philippines should
not be treated as deposits made by third parties subject to deposit insurance under the
PDIC Charter.

For lack of judicial precedents on this issue, the Court seeks guidance from American
jurisprudence. In the leading case of Sokoloff v. The National City Bank of New York,
where the Supreme Court of New York held:
 Where a bank maintains branches, each branch becomes a separate
business entity with separate books of account. A depositor in one branch
cannot issue checks or drafts upon another branch or demand payment
from such other branch, and in many other respects the branches are
considered separate corporate entities and as distinct from one another as
any other bank. Nevertheless, when considered with relation to the parent
bank they are not independent agencies; they are, what their name imports,
merely branches, and are subject to the supervision and control of the
parent bank, and are instrumentalities whereby the parent bank carries on
its business, and are established for its own particular purposes, and their
business conduct and policies are controlled by the parent bank and their
property and assets belong to the parent bank, although nominally held in
the names of the particular branches. Ultimate liability for a debt of a branch
would rest upon the parent bank. [Emphases supplied]

This ruling was later reiterated in the more recent case of United States v. BCCI Holdings
Luxembourg where the United States Court of Appeals, District of Columbia Circuit,
emphasized that "while individual bank branches may be treated as independent of one
another, each branch, unless separately incorporated, must be viewed as a part of the
parent bank rather than as an independent entity."

3. Philippines Companies as Subsidiary of US

Companies
REGISTRATION

Corporation Code

Section 10. Number and qualifications of incorporators. – Any number of natural

persons not less than five (5) but not more than fifteen (15), all of legal age and a majority
of whom are residents of the Philippines, may form a private corporation for any lawful
purpose or purposes. Each of the incorporators of s stock corporation must own or be a
subscriber to at least one (1) share of the capital stock of the corporation. (6a)

Section 12. Minimum capital stock required of stock corporations. – Stock

corporations incorporated under this Code shall not be required to have any minimum
authorized capital stock except as otherwise specifically provided for by special law, and
subject to the provisions of the following section.

Section 13. Amount of capital stock to be subscribed and paid for the purposes of
incorporation. – At least twenty-five percent (25%) of the authorized capital stock as
stated in the articles of incorporation must be subscribed at the time of incorporation, and
at least twenty-five (25%) per cent of the total subscription must be paid upon
subscription, the balance to be payable on a date or dates fixed in the contract of
subscription without need of call, or in the absence of a fixed date or dates, upon call for
payment by the board of directors: Provided, however, That in no case shall the paid-up
capital be less than five Thousand (P5,000.00) pesos. (n)

Section 14. Contents of the articles of incorporation. – All corporations organized

under this code shall file with the Securities and Exchange Commission articles of
incorporation in any of the official languages duly signed and acknowledged by all of the
incorporators, containing substantially the following matters, except as otherwise
prescribed by this Code or by special law:

1. The name of the corporation;

2. The specific purpose or purposes for which the corporation is being incorporated.
Where a corporation has more than one stated purpose, the articles of incorporation
shall state which is the primary purpose and which is/are the secondary purpose or
purposes: Provided, That a non-stock corporation may not include a purpose which
would change or contradict its nature as such;

3. The place where the principal office of the corporation is to be located, which must
be within the Philippines;

4. The term for which the corporation is to exist;

5. The names, nationalities and residences of the incorporators;

6. The number of directors or trustees, which shall not be less than five (5) nor more
than fifteen (15);

7. The names, nationalities and residences of persons who shall act as directors or
trustees until the first regular directors or trustees are duly elected and qualified in
accordance with this Code;

8. If it be a stock corporation, the amount of its authorized capital stock in lawful

money of the Philippines, the number of shares into which it is divided, and in case
the share are par value shares, the par value of each, the names, nationalities and
residences of the original subscribers, and the amount subscribed and paid by each
on his subscription, and if some or all of the shares are without par value, such fact
must be stated;

9. If it be a non-stock corporation, the amount of its capital, the names, nationalities

and residences of the contributors and the amount contributed by each; and

10. Such other matters as are not inconsistent with law and which the incorporators
may deem necessary and convenient.
The Securities and Exchange Commission shall not accept the articles of incorporation
of any stock corporation unless accompanied by a sworn statement of the Treasurer
elected by the subscribers showing that at least twenty-five (25%) percent of the
authorized capital stock of the corporation has been subscribed, and at least twenty-five
(25%) of the total subscription has been fully paid to him in actual cash and/or in property
the fair valuation of which is equal to at least twenty-five (25%) percent of the said
subscription, such paid-up capital being not less than five thousand (P5,000.00) pesos.

Documentary requirements:

a. Name Verification Slip

b. Application Form
c. Articles of Incorporation
Contents:
1. The name of the corporation;
2. The specific purpose or purposes for which the corporation is being
incorporated. Where a corporation has more than one stated purpose, the
articles of incorporation shal state which is the primary purpose, and which
is/are the secondary purpose or purposes;
3. The place where the principal office of the corporation is to be located,
which must be within the Philippines;
4. The term for which the corporation is to exist;
5. The names, nationalities and residences of the incorporators;
6. The number of directors which shall not be less than five (5) nor more than
fifteen (15);
7. The names, nationalities, and residences of persons who shall act as
directors until the first regular directors are duly elected and qualified in
accordance with the Corporation Code;
8. The amount of its authorized capital stock in lawful money of the Philippines,
the number of shares into which it is divided, and in case the share are par
value shares, the par value of each, the name, nationalities and residence
of the original subscribers, and the amount subscribed and paid by each on
his subscription, and if some or all of the shares are without par value, such
fact must be stated;
d. By-laws
e. Treasurer’s Affidavit on the Capitalization,
 Domestic Corporation with more than 40% foreign equity must have a
minimum paid up capital of $200,000.00, in case of Domestic Market
Enterprise, or P5,000,00 in case of Export Market Enterprise. The applicant
must submit proof of Inward Remittance such as bank certificate of inward
remittance. (base on requirements provided by SEC website attached as
annex “B”)
f. Joint affidavit of two incorporators undertaking to change corporate name, as
provided in its Article of Incorporation or as amended thereafter, immediately upon
receipt of notice or directive from the SEC that another corporation, partnership, or
 person has acquired a prior right to the use of that name or that name has been
declared misleading, deceptive, confusingly similar to a registered name, or contrary
to public morals, good customs, or public policy.

TAXATION

Same treatment as the other domestic corporations

National Internal Revenue Code

SEC. 27. Rates of Income tax on Domestic Corporations. -

(A) In General. - Except as otherwise provided in this Code, an income tax of thirty-five
percent (35%) is hereby imposed upon the taxable income derived during each
taxable year from all sources within and without the Philippines by every
corporation, as defined in Section 22(B) of this Code and taxable under this Title as a
corporation, organized in, or existing under the laws of the Philippines: Provided, That
effective January 1, 2009, the rate of income tax shall be thirty percent (30%).

In the case of corporations adopting the fiscal-year accounting period, the taxable income
shall be computed without regard to the specific date when specific sales, purchases and
other transactions occur. Their income and expenses for the fiscal year shall be deemed
to have been earned and spent equally for each month of the period.

The corporate income tax rate shall be applied on the amount computed by multiplying
the number of months covered by the new rate within the fiscal year by the taxable income
of the corporation for the period, divided by twelve.

SEC. 29. Imposition of Improperly Accumulated Earnings Tax. -

(A) In General. - In addition to other taxes imposed by this Title, there is hereby imposed
for each taxable year on the improperly accumulated taxable income of each corporation
described in Subsection B hereof, an improperly accumulated earnings tax equal to
ten percent (10%) of the improperly accumulated taxable income.

(B) Tax on Corporations Subject to Improperly Accumulated Earnings Tax. -

(1) In General. - The improperly accumulated earnings tax imposed in the preceding
Section shall apply to every corporation formed or availed for the purpose of
avoiding the income tax with respect to its shareholders or the shareholders of any
other corporation, by permitting earnings and profits to accumulate instead of being
divided or distributed.
(2) Exceptions. - The improperly accumulated earnings tax as provided for under
this Section shall not apply to:
(a) Publicly-held corporations;
(b) Banks and other nonbank financial intermediaries; and
(c) Insurance companies.
(C) Evidence of Purpose to Avoid Income Tax. -
(1) Prima Facie Evidence. - the fact that any corporation is a mere holding company
or investment company shall be prima facie evidence of a purpose to avoid the tax
upon its shareholders or members.
(2) Evidence Determinative of Purpose. - The fact that the earnings or profits of a
corporation are permitted to accumulate beyond the reasonable needs of the
business shall be determinative of the purpose to avoid the tax upon its shareholders
or members unless the corporation, by the clear preponderance of evidence, shall
prove to the contrary.

(D) Improperly Accumulated Taxable Income. - For purposes of this Section, the term
'improperly accumulated taxable income' means taxable income adjusted by:
(a) Income exempt from tax;
(b) Income excluded from gross income;
(c) Income subject to final tax; and
(d) The amount of net operating loss carry-over deducted;
And reduced by the sum of:
(a) Dividends actually or constructively paid; and
(b) Income tax paid for the taxable year.
Provided, however, that for corporations using the calendar year basis, the accumulated
earnings tax shall not apply on improperly accumulated income as of December 31, 1997.
In the case of corporations adopting the fiscal year accounting period, the improperly
accumulated income not subject to this tax, shall be reckoned, as of the end of the month
comprising the twelve (12)-month period of fiscal year 1997-1998.

(E) Reasonable Needs of the Business. - For purposes of this Section, the term
'reasonable needs of the business' includes the reasonably anticipated needs of the
business.

LIABILITY

Subsidiary corporation has a juridical entity separate from that of its parent company. Its
liabilities are different from the liability of the latter.

Philippine Deposit Insurance Corporation v. Citibank, N.A. and Bank of America,

S.T. & N.A., G.R. No. 170290, April 11, 2012

The Court begins by examining the manner by which a foreign corporation can establish
its presence in the Philippines. It may choose to incorporate its own subsidiary as a
domestic corporation, in which case such subsidiary would have its own separate
and independent legal personality to conduct business in the country. In the
alternative, it may create a branch in the Philippines, which would not be a legally
independent unit, and simply obtain a license to do business in the Philippines.

4. Creating a Holding Company

REGISTRATION

Documentary Requirements:

a. Name Verification Slip

b. Application Form
c. Articles of Incorporation
Contents:
1. The name of the corporation;
2. The specific purpose or purposes for which the corporation is being
incorporated. Where a corporation has more than one stated purpose, the
articles of incorporation shal state which is the primary purpose and which
is/are the secondary purpose or purposes;
3. The place where the principal office of the corporation is to be located,
which must be within the Philippines;
4. The term for which the corporation is to exist;
5. The names, nationalities and residences of the incorporators;
6. The number of directors which shall not be less than five (5) nor more than
fifteen (15);
7. The names, nationalities, and residences of persons who shall act as
directors until the first regular directors are duly elected and qualified in
accordance with the Corporation Code;
8. The amount of its authorized capital stock in lawful money of the Philippines,
the number of shares into which it is divided, and in case the share are par
value shares, the par value of each, the name, nationalities and residence
of the original subscribers, and the amount subscribed and paid by each on
his subscription, and if some or all of the shares are without par value, such
fact must be stated;
d. By-laws
e. Treasurer’s Affidavit on the Capitalization,
f. Joint affidavit of two incorporators undertaking to change corporate name, as provided
in its Article of Incorporation or as amended thereafter, immediately upon receipt of
notice or directive from the SEC that another corporation, partnership, or person has
acquired a prior right to the use of that name or that name has been declared
misleading, deceptive, confusingly similar to a registered name, or contrary to public
morals, good customs, or public policy.

TAXATION

Same treatment as the other domestic corporations

National Internal Revenue Code

SEC. 27. Rates of Income tax on Domestic Corporations. -

(A) In General. - Except as otherwise provided in this Code, an income tax of thirty-five
percent (35%) is hereby imposed upon the taxable income derived during each
taxable year from all sources within and without the Philippines by every
corporation, as defined in Section 22(B) of this Code and taxable under this Title as a
corporation, organized in, or existing under the laws of the Philippines: Provided, That
effective January 1, 2009, the rate of income tax shall be thirty percent (30%).

In the case of corporations adopting the fiscal-year accounting period, the taxable income
shall be computed without regard to the specific date when specific sales, purchases and
other transactions occur. Their income and expenses for the fiscal year shall be deemed
to have been earned and spent equally for each month of the period.

The corporate income tax rate shall be applied on the amount computed by multiplying
the number of months covered by the new rate within the fiscal year by the taxable income
of the corporation for the period, divided by twelve.

SEC. 29. Imposition of Improperly Accumulated Earnings Tax. -

(A) In General. - In addition to other taxes imposed by this Title, there is hereby imposed
for each taxable year on the improperly accumulated taxable income of each corporation
described in Subsection B hereof, an improperly accumulated earnings tax equal to
ten percent (10%) of the improperly accumulated taxable income.
(B) Tax on Corporations Subject to Improperly Accumulated Earnings Tax. -
(1) In General. - The improperly accumulated earnings tax imposed in the preceding
Section shall apply to every corporation formed or availed for the purpose of
avoiding the income tax with respect to its shareholders or the shareholders of any
other corporation, by permitting earnings and profits to accumulate instead of being
divided or distributed.
(2) Exceptions. - The improperly accumulated earnings tax as provided for under
this Section shall not apply to:
(a) Publicly-held corporations;
(b) Banks and other nonbank financial intermediaries; and
(c) Insurance companies.

(C) Evidence of Purpose to Avoid Income Tax. -

(1) Prima Facie Evidence. - the fact that any corporation is a mere holding company
or investment company shall be prima facie evidence of a purpose to avoid the tax
upon its shareholders or members.
(2) Evidence Determinative of Purpose. - The fact that the earnings or profits of a
corporation are permitted to accumulate beyond the reasonable needs of the
business shall be determinative of the purpose to avoid the tax upon its shareholders
or members unless the corporation, by the clear preponderance of evidence, shall
prove to the contrary.

(D) Improperly Accumulated Taxable Income. - For purposes of this Section, the term
'improperly accumulated taxable income' means taxable income adjusted by:
(a) Income exempt from tax;
 (b) Income excluded from gross income;
(c) Income subject to final tax; and
(d) The amount of net operating loss carry-over deducted;

And reduced by the sum of:

(a) Dividends actually or constructively paid; and
(b) Income tax paid for the taxable year.

Provided, however, that for corporations using the calendar year basis, the accumulated
earnings tax shall not apply on improperly accumulated income as of December 31, 1997.
In the case of corporations adopting the fiscal year accounting period, the improperly
accumulated income not subject to this tax, shall be reckoned, as of the end of the month
comprising the twelve (12)-month period of fiscal year 1997-1998.
(E) Reasonable Needs of the Business. - For purposes of this Section, the term
'reasonable needs of the business' includes the reasonably anticipated needs of the
business.

LIABILITY

Holding company has its own legal personality separate and distinct from its subsidiaries
and affiliates. Each of them has its own separate rights and obligations.

5. Creating a Regional Headquarters in the

Philippines
REGISTRATION

E.O. No. 226, “Omnibus Investments Code of 1987, as amended by R.A. No. 8756

Art. 58. Qualification of Regional or Area Headquarters. - Any foreign business entity
formed, organized and existing under any laws other than those of the Philippines whose
purpose, as expressed in its organizational documents or by resolution of its Board of
Directors or its equivalent, is to supervise, superintend, inspect or coordinate its own
affiliates, subsidiaries or branches in the Asia-Pacific Region and other foreign markets
may establish a regional or area headquarters in the Philippines, by securing a license
therefor from the Securities and Exchange Commission, upon the favorable
recommendation of the Board of Investments.

The Securities and Exchange Commission shall, within thirty (30) days from the effectivity
of this Code, issue the implementing rules and regulations. The following minimum
requirements shall, however, be complied with by the said foreign entity:

(a) A certification from the Philippine Consulate/Embassy, or a duly authenticated

certification from the Department of Trade and Industry or its equivalent in the
foreign firm's home country that said foreign firm is an entity engaged in international
 trade with affiliates, subsidiaries or branch offices in the Asia-Pacific Region and
other foreign markets.

(b) A duly authenticated certification from the principal officer of the foreign entity to
the effect that the said foreign entity has been authorized by its Board of Directors
or governing body to establish its regional or area headquarters in the Philippines,
specifying that:

(1) The activities of the regional or area headquarters shall be limited to acting
as a supervisory, communications and coordinating center for its subsidiaries,
affiliates and branches in the region;

(2) The regional or area headquarters will not derive any income from sources
within the Philippines and will not participate in any manner in the management
of any subsidiary or branch office it might have in the Philippines nor shall it
solicit or market goods and services whether on behalf of its mother company
or its branches, affiliates, subsidiaries or any other company; and

(3) The regional or area headquarters shall notify the Board of Investments
and the Securities and Exchange Commission of any decision to close down
or suspend operations of its headquarters at least fifteen (15) days before the
same is effected.

(c) An undertaking that the multinational company will remit into the country such
amount as may be necessary to cover its operations in the Philippines but which
amount will not be less than Fifty thousand United States dollars ($50,000) or its
equivalent in other foreign currencies annually. Within thirty (30) days from receipt
of certificate of registration from the Securities and Exchange Commission, the
multinational company will submit to the Securities and Exchange Commission a
certificate of inward remittance from a local bank showing that it has remitted to the
Philippines the amount of at least Fifty thousand United States dollars ($50,000) or
its equivalent in other foreign currencies and converted the same to Philippine
currency. Annually, within thirty (30) days from the anniversary date of the
multinational company's registration as a regional or area headquarters with the
Securities and Exchange Commission, it will submit proof to the Securities and
Exchange Commission of inward remittance amounting to at least Fifty
thousand United States dollars ($50,000) or its equivalent in other foreign
currencies during the past year.

Documentary requirements:

a. Cover sheet
b. Name Verification Slip
c. Application Form
d. Certification from the Philippine Consulate/Embassy or the Philippine Commercial
Office or from the equivalent office of the Philippine DTI in the applicant’s home
 country that said foreign firm is an entity engaged in international trade with affiliates,
subsidiaries or branch offices in the Asia Pacific Region and other foreign markets;
in case the Certification is issued by the equivalent office of the DTI, the same shall
be authenticated by the Philippine Consulate/Embassy
e. Authenticated Certification from principal officer of the foreign entity to the effect that
the said foreign entity has been authorized by its board of directors or governing
body to establish its RHQ/ROHQ
f. Affidavit of undertaking to change corporate name ( not required if already stated in
the Application Form)
g. Endorsement of the Board of Investments
h. Proof of Inward Remittance such as bank certificate of inward remittance of
$50,000.00
i. Endorsement/Clearance from appropriate government agencies, if applicable

TAXATION

National Internal Revenue Code

SEC. 28. Rates of Income Tax on Foreign Corporations. -

(A) Tax on Resident Foreign Corporations. -

XXX

(6) Regional or Area Headquarters and Regional Operating Headquarters of

Multinational Companies. -

(a) Regional or area headquarters as defined in Section 22(DD) shall not

be subject to income tax.

XXX

SEC. 109. Exempt Transactions. -

(1) Subject to the provisions of Subsection (2) hereof, the following transactions
shall be exempt from the value-added tax.

XXX

(J) Services rendered by regional or area headquarters established in the

Philippines by multinational corporations which act as supervisory,
communications and coordinating centers for their affiliates, subsidiaries or
branches in the Asia-Pacific Region and do not earn or derive income from the
Philippines;

XXX
E.O. No. 226, “Omnibus Investments Code of 1987, as amended by R.A. No. 8756

Art. 64. Corporate Income Tax Incentive to Regional or Area Headquarters and
Regional Operating Headquarters. - Regional or area headquarters established in the
Philippines by multinational companies and which headquarters do not earn or derive
income from the Philippines and which act as supervisory, communications and
coordinating centers for their affiliates, subsidiaries, or branches in the Asia-Pacific
Region and other foreign markets shall not be subject to income tax. Regional
operating headquarters shall be subject to a tax rate of ten percent (10%) of their taxable
income as provided for under the National Internal Revenue Code, as amended by
Republic Act No. 8424: Provided, That any income derived from Philippine sources by
the ROHQ when remitted to the parent company shall be subject to the tax on branch
profit remittances as provided for in Section 28(a)(5) of the National Internal Revenue
Code.

Art. 65. Value-Added Tax. - The regional or area headquarters established in the
Philippines by multinational companies shall be exempted from the value-added tax.
In addition, the sale or lease of goods and property and the rendition of services to
regional or area headquarters shall be subject to zero percent (0%) VAT rate as provided
for in the National Internal Revenue Code, as amended.

Regional operating headquarters shall be subject to the ten percent (10%) value-added
tax as provided for under the National Internal Revenue Code, as amended.

Art. 66. Exemption From All Kinds of Local Taxes, Fees, or Charges. - The regional
or area headquarters and regional operating headquarters of multinational companies
shall be exempt from all kinds of local taxes, fees, or charges imposed by a local
government unit except real property tax on land improvements and equipment.

Art. 67. Tax and Duty Free Importation of Training Materials and Equipment;
Importation of Motor Vehicles. - Regional or area headquarters and regional operating
headquarters shall enjoy tax and duty free importation of equipment and materials
for training and conferences which are needed and used solely for their functions as
regional or area headquarters or regional operating headquarters and which are not
locally available subject to the prior approval of the Board of Investments.

The sale or disposition of equipment within two (2) years after importation, entered tax
and duty free, shall require prior approval of the Board of Investments and prior payment
of applicable taxes and duties waived in favor of RHQ/ROHQ.

Regional or area headquarters and regional operating headquarters shall be entitled to

the importation of new motor vehicles subject to the payment of the corresponding taxes
and duties.
LIABILITY

Regional or Area Headquarters has no separate legal personality from the parent
corporation and the laws governing its formation, existence, and dissolution are law of the
country where its parent company was organized or established. Any liability that it will
incur are considered liabilities of the parent corporation.

National Internal Revenue Code

Section 2. Definition of Terms. - For purposes of this Act, the term:

XXX

(2) Regional or Area Headquarters (RHQ) shall mean an office whose purpose is to
act as an administrative branch of a multinational company engaged in international
trade which principally serves as a supervision, communications and coordination
center for its subsidiaries, branches or affiliates in the Asia-Pacific Region and other
foreign markets and which does not earn or derive income in the Philippines;