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    Sec-Ogc Opinion No. 14-17

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    zelayne
    This document is a legal opinion from the SEC General Counsel regarding the applicability of foreign ownership restrictions and the Anti-Dummy Law to an international freight forwarding company. The opinion finds that: 1) Companies engaged exclusively in international freight forwarding are not subject to the 60% foreign ownership limit on public utilities under the Constitution, as they are engaged solely in international commerce. 2) Such companies can increase foreign equity ownership above 40% without violating laws. 3) The Anti-Dummy Law's restriction on electing foreign citizens as president does not apply to these companies.

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    Sec-Ogc Opinion No. 14-17

    Uploaded by

    zelayne
    49 views3 pages
    This document is a legal opinion from the SEC General Counsel regarding the applicability of foreign ownership restrictions and the Anti-Dummy Law to an international freight forwarding company. The opinion finds that: 1) Companies engaged exclusively in international freight forwarding are not subject to the 60% foreign ownership limit on public utilities under the Constitution, as they are engaged solely in international commerce. 2) Such companies can increase foreign equity ownership above 40% without violating laws. 3) The Anti-Dummy Law's restriction on electing foreign citizens as president does not apply to these companies.

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    SEC-OGC OPINION NO. 14-17

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    This document is a legal opinion from the SEC General Counsel regarding the applicability of foreign ownership restrictions and the Anti-Dummy Law to an international freight forwarding company. The opinion finds that: 1) Companies engaged exclusively in international freight forwarding are not subject to the 60% foreign ownership limit on public utilities under the Constitution, as they are engaged solely in international commerce. 2) Such companies can increase foreign equity ownership above 40% without violating laws. 3) The Anti-Dummy Law's restriction on electing foreign citizens as president does not apply to these companies.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    49 views3 pages

    Sec-Ogc Opinion No. 14-17

    Uploaded by

    zelayne
    This document is a legal opinion from the SEC General Counsel regarding the applicability of foreign ownership restrictions and the Anti-Dummy Law to an international freight forwarding company. The opinion finds that: 1) Companies engaged exclusively in international freight forwarding are not subject to the 60% foreign ownership limit on public utilities under the Constitution, as they are engaged solely in international commerce. 2) Such companies can increase foreign equity ownership above 40% without violating laws. 3) The Anti-Dummy Law's restriction on electing foreign citizens as president does not apply to these companies.

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    November 17, 2017

    SEC-OGC OPINION NO. 14-17

    RE: INTERNATIONAL FREIGHT FORWARDING; APPLICABILITY OF ANTI-DUMMY LAW

    Valdecantos & Valencia Law Office


    Untis 16-IJ1 and 16-IJ2, 16th Floor
    Burgundy Corporate Tower
    252 Sen. Gil J. Puyat Ave.,
    Makati City 1200

    Attention: Atty. Jose B. Valencia

    Dear Atty. Valencia,

    This refers to your letter dated 03 August 2016 requesting for confirmation of the legality of
    the proposed increase of the foreign equity participation in MOL Logistics (Phils.), Inc., (MOL
    Logistics) and the applicability of Commonwealth Act No. 108, as amended (Anti-Dummy Law).

    As stated in your letter, MOL Logistics is a domestic corporation engaged in the business of
    international freight forwarding with the primary purpose as follows:

    "to engage in and carry on the business of international ocean and air freight forwarding
    and logistics including distribution, warehousing, packaging, crating, labeling, inventory
    management and control of general cargo, merchandise, plant and heavy machinery,
    household goods and personal effects; to act as cargo consolidator, representative,
    contractor, or consultant of companies or individuals directly or indirectly, wholly or partially
    engaged or related to any or all the above businesses; and/or operate as an international
    non-vessel operating common carrier"

    Currently, MOL Logistics is 60% owned by Filipino shareholders and 40% owned by shareholders of
    foreign nationality. Moreover, you disclosed that it seeks to increase its foreign equity to about 80%,
    effected through buyout of shares of stock belonging to Filipino shareholders.

    Based on the foregoing, you now pose the following queries:

    1. Whether a corporation doing business as an international freight forwarder can


    increase its foreign equity to more than 40% without violating the Constitution and other laws.

    2. Whether said corporation can elect a foreign citizen as its President.

    With respect to the first issue, a freight forwarder is considered as an operator of a public
    utility, which is defined as a "business or service engaged in regularly supplying the public with some
    commodity or service of public consequence such as electricity, gas, water, transportation, telephone
    or telegraph service." 1

    Under Article XII of the 1987 Philippine Constitution, foreign ownership is restricted in
    corporations or associations operating a public utility, to wit:

    "Section 11. No franchise, certificate, or any other form of authorization for the
    operation of a public utility shall be granted except to citizens of the Philippines or to
    corporations or associations organized under the laws of the Philippines, at least sixty
    per centum of whose capital is owned by such citizens; nor shall such franchise,
    certificate, or authorization be exclusive in character or for a longer period than fifty years.
    Neither shall any such franchise or right be granted except under the condition that it shall be
    subject to amendment, alteration, or repeal by the Congress when the common good so
    requires. The State shall encourage equity participation in public utilities by the general
    public. The participation of foreign investors in the governing body of any public utility
    enterprise shall be limited to their proportionate share in its capital, and all the executive and
    managing officers of such corporation or association must be citizens of the Philippines" 2
    (Emphasis and underscoring supplied).

    In SEC-OGC Opinion No. 08-21, it was opined that air freight forwarding is tantamount to
    engaging in domestic air commerce and/or air transportation. 3 However, this foreign ownership
    restriction finds no application in cases where the public utility is engaged exclusively in international
    commerce.

    In a recent related opinion, SEC-OGC Opinion No. 16-08, 4 the Commission opined that
    utility firms such as international freight forwarders engaged exclusively in international commerce are
    beyond the Constitutional prohibition limiting foreign ownership to 40% of the capital of a corporation.

    SEC-OGC Opinion 16-08 provided a summary of the related DOJ and SEC opinions
    regarding the inapplicability of the foreign equity restrictions to international freight forwarding, to wit:

    "In the Department of Justice (DOJ) Opinion No. 98 dated 09 November 2004, 5 the
    DOJ clarified several opinions in relation to international freight forwarding vis-à-vis foreign
    participation in the said business endeavor, stating that the nationality requirement applies
    only to domestic air transport and not to international air freight forwarders.

    In another DOJ Opinion involving Maritime Shipping, it was held that public utilities
    which are engaged exclusively in international commerce are beyond the purview of the
    constitutional provision limiting operation of public utilities to citizens of the Philippines or to
    corporations or entities at least 60% of the capital of which is owned by citizens of the
    Philippines. 6

    This was reiterated in SEC-OGC Opinions 08-21 and 10-30 issued in 2008 and 2010
    respectively, wherein, this Commission interpreted that a corporation engaging in
    international (air) freight forwarding is beyond the purview of the nationality requirement for
    the operation of public utilities and may be 100% foreign." 7

    Thus, corporations engaged exclusively in international freight forwarding are considered


    beyond the purview of the nationality requirement for the operation of public utilities and therefore,
    may be owned up to 100% by foreigners.

    Consequently, the prohibition under the Anti-Dummy Law, specifically as to electing a foreign
    citizen as its President, does not apply to corporations engaged in international freight forwarding as
    they are not considered to be engaged in any nationalized or partly nationalized activity. 8

    It shall be understood, however, that the foregoing opinion is rendered based solely on the
    facts and circumstances disclosed and relevant solely to the particular issue raised therein. It shall
    not be used in the nature of a standing rule binding upon the Commission in other cases or upon the
    courts whether of similar or dissimilar circumstances. 9 If, upon further inquiry or investigation, it will
    be disclosed that the facts relied upon are different, this opinion shall be rendered void.

    Please be guided accordingly.

    (SGD.) CAMILO S. CORREA


    General Counsel

    Footnotes
    1. Albano v. Reyes, G.R. No. 83551, 11 July 1989; NAPOCOR v. Court of Appeals, G.R. No.
    112702, 26 September 1997; JG Summit Holdings, Inc. v. Court of Appeals, et al., G.R. No. 124293,
    24 September 2003.
    2. 1987 Philippine Constitution, Article XII, Section 11.
    3. SEC-OGC Opinion No. 08-21, dated 29 October 2008, addressed to Atty. Agerico T. Paras.
    4. SEC-OGC Opinion No. 16-08 dated 20 April 2016 addressed to Mr. Takuma Yamaguchi.
    5. Letter to Mr. Domingo I. Bagaporo, Director, Board of Investments, 08 October 2014.
    6. DOJ Opinion No. 191, s. 1982, 31 August 1982 addressed to Maritime Industry Authority.
    7. SEC-OGC Opinion No. 16-08 dated 20 April 2016 addressed to Mr. Takuma Yamaguchi.
    8. SEC Opinion dated 28 May 1985 addressed to Mr. Esteban N. Eugenio, Jr.
    9. SEC Memorandum Circular 2003-15, No. 7.

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