The Securities and Exchange Commission (“SEC”) issued on 31 July 2019 its Memorandum Circular No. 17, Series of 2019 (the “Revised Guidelines”) entitled “Revised Guidelines on Securities Deposit of Branch Offices of Foreign Corporations,” superseding SEC Memorandum Circular No. 2, Series of 2012, the previous guidelines on securities deposit of branch offices.

The Revised Guidelines include Philippine government debt instruments or equity instruments as types of acceptable securities. However, cash, money market placements, time deposits, bank guaranty, standby letter of credit, and similar instruments are not acceptable as securities deposit.

Broadly, the Revised Guidelines provide that it is applicable to all branch offices of foreign corporations that are mandated to deposit securities. By way of negative definition, the Revised Guidelines exclude the following corporations from the mandated posting of securities:

  1. Foreign banking corporations including offshore banking units;
  2. Foreign insurance corporations;
  3. Foreign non-stock corporations including foreign religious corporations;
  4. Foreign corporations which have established representative offices in the Philippines;
  5. Regional or Area Headquarters of multinational companies; and
  6. Operating Regional Headquarters of multinational companies.

As for the value of the securities to be posted, the Revised Guidelines require that securities with an actual market value of Five Hundred Thousand Pesos (PHP500,000.00) – previously One Hundred Thousand Pesos (PHP100,000.00) – be posted with the SEC within sixty (60) days after the issuance of the SEC license. Further, additional securities shall be deposited with the SEC within six (6) months after the end of the fiscal year if:

  1. The gross income of the branch office within the Philippines for that fiscal year exceeds Ten Million Pesos (PHP10,000,000.00) – previously Five Million Pesos (PHP5,000,000.00). The additional securities shall have an actual market value equivalent of two percent (2%) the increase in the said gross income; and
  2. The actual market value of the securities deposit or financial instruments has decreased by at least ten percent (10%) from the time it was deposited. The additional securities shall have an actual market value that would cover the decrease.

In computing gross income, the Revised Guidelines allow the deductions of sales returns, allowances and discounts. Additionally, direct costs and expenses incurred with foreign entities and related parties may be deducted from gross income subject to the documentary requirements, such as an Audited Special Income Statement showing separately the amounts of direct cost and expenses actually incurred, and other requirements.

Notably, the securities deposited may also be substituted or partially released under certain circumstances. If the branch office will withdraw from business in the Philippines, the securities deposited may be returned by the SEC upon written application enclosing the resolution of the board of directors of the foreign corporation to the effect that it desires to withdraw its license to do business in the Philippines and has no liabilities with the Philippine Government, corporations, and residents and citizens.

While the securities are deposited with the SEC, the branch office is entitled to collect the interest or dividends on the said securities.

As for branch offices of foreign airline companies, the Revised Guidelines provide for a modified formula in the computation of the securities deposit considering its cross boarder operations.

Lastly, fines and penalties are also provided for non-compliance ranging from a scheduled fine to suspension or revocation of the SEC license.

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