In view of the Enhanced Community Quarantine, the Philippine Securities and Exchange Commission issued SEC Memorandum Circular No. 6, Series of 2020, providing “Guidelines on the Attendance and Participation of Directors, Trustees, Stockholders, Members, and Other Persons of Corporations in Regular and Special Meetings through Teleconferencing, Video Conferencing and Other Remote or Electronic Means of Communication”.
Here are the salient points of the Memorandum:
- Board meetings may be conducted through remote communication. Note, however, that directors cannot attend or vote by proxy at board meetings.
- Corporations may issue their own internal procedures for the conduct of board meetings through remote communication or other alternative modes of communication to address administrative, technical and logistical issues.
- A majority of the directors as stated in the articles of incorporation shall constitute a quorum. A director who participates through remote communication, shall be deemed present for the purpose of attaining quorum.
- At the start of the meeting, the Presiding Officer shall instruct the Corporate Secretary to make a roll call. Every attendee shall state for the record the following: (a) Full name and position; (b) Location;(c) Confirmation that he/she can clearly hear and/or see the other attendees; (d) Confirmation that he/she received the Notice of the Meeting including the agenda and materials; and (e) Specify the device being used (ie., smartphone, tablet, laptop, desktop, television, etc.)
- Participation in stockholder meetings, including the right to vote, may likewise be done remotely, as long as provided for in the bylaws or by majority of the board of directors.
In sum, the Memorandum makes it possible for the board of directors to issue resolutions and decide on corporate acts during the Enhanced Community Quarantine.
The full text of SEC Memorandum Circular No. 6, Series of 2020 may be found on this link: http://www.sec.gov.ph/wp-content/uploads/2020/03/2020MCNo06.pdf
For further queries on this matter or other legal concerns, you may contact us from Mondays to Fridays, 9:00 AM to 6:00 PM, through our email: email@example.com, and our website at http://mfbr.com.ph.
The Intellectual Property Office released the “Updated Advisory on IPOPHL Services In Light of COVID-19”
Five Things You Need To Know Before Starting A Crypto-Exchange Business In The Philippines
- You must have the BSP’s approval before you can register your company with the SEC. For most companies, the usual requirement before legitimately operating a business is to simply secure a license with the Securities and Exchange Commission. However, the same route is not true for a crypto-exchange business, as it must first secure an endorsement from the Bangko Sentral ng Pilipinas.To get the BSP’s nod of approval (for SEC registration purposes), the company must pass the rigorous preliminary screening process for determining its eligibility for registration.At this point, the company must prepare, among others, a business plan detailing the company’s purpose, organizational structure, products/services to be offered, target market/network, operational workflow and capital requirements. The business plan must be clear enough to give BSP an idea of what you really intend to do. If your operations will include online transactions, you should also be ready to present your platform. If you pass the preliminary screening, a letter of no objection will be issued in your favor, and you can proceed with your SEC application for registration.
- You must secure a BSP license before operating your crypto-exchange business. Once you’re registered with the SEC, should you already start the crypto-exchange operations? Not yet.You must go back to BSP and comply with the second stage requirements, which are listed under the BSP Memorandum No. M-2017- 014. Basically, you will have to submit the SEC incorporation documents and business permit of the company. The company’s officers and directors must submit their personal data sheets and undertakings to comply with AML rules.
- You must meet the capitalization requirements. The capitalization requirement may range from less than PHP10 million for small-scale operators to at least PHP50 million for large-scale operators. If your business includes e-money issuance, the requirement is PHP100 million.
- You must build a secure IT infrastructure. The use of digital technology is faced with challenges, such as more sophisticated cyber-attack methods. Pursuant to BSP Circular No. 944, Series of 2017, a virtual currency exchange shall put in place adequate risk management and security control mechanisms to address, manage and mitigate technology risks associated with virtual currencies. An effective cyber security program should be established by a virtual currency exchange that provides wallet services. For simple virtual currency operations, installing up-to-date anti-malware solutions, conducting periodic back- ups and being aware of emerging risks and cyber-attacks may suffice.No matter the complexity of your operations, at the end of the day, the integrity and security of your platform must be maintained. Thus, you should seek competent IT professionals or service providers that will help in protecting your clients’ funds and data, and likewise your business.
- You must comply with anti-money laundering laws. A virtual currency exchange must register with the Anti-Money Laundering Council within 30 days from the actual date of commencement of operations. Its principal directors, officers, or responsible personnel should attend a seminar on anti-money laundering and terrorist financing, and training for staff should be provided to enable them to detect illegal transactions and/or prevent the exchange from being used for fraudulent purposes. Policies must be implemented to ensure compliance with anti- money laundering regulations. The board of directors should likewise appoint a Compliance Officer who shall be responsible for overseeing the implementation of relevant policies and reporting covered and suspicious transactions.
It’s been a busy time recently for MFBR. Attorney Matthew Mortega represented us at the Data Privacy Summit last August 24, 2018 in Fort Bonifacio and has authored a fascinating article on that very subject which we will be adding to our blog very soon. Meanwhile, our Blockchain and Cryptocurrency specialist, Attorney Stephanie Tible, attended the Blockchain Summit in Singapore last August 28, 2018, along with our IT Associate, Strauss Santos.
Tax Implications of Cryptocurrencies in the Philippines (August 16 2018)
May a transaction involving virtual currencies be subject to tax?
As discussed in the previous article, while the Bangko Sentral ng Pilipinas (BSP) and Securities and Exchange Commission (SEC) have issued guidelines on cryptocurrencies, the Bureau of Internal Revenue has remained silent on the matter.
Yet, despite the lack of BIR guidelines specifically pertaining to cryptocurrencies, persons dealing with digital currencies like Bitcoin are not exactly exempt from taxes.
To explain this, let’s take a look at the nature of taxation.
In the case of Film Development Council of the Philippines vs. Colon Heritage Realty Corporation, G.R. 203754, 16 June 2015, the Supreme Court held that the power of taxation, being an essential and inherent attribute of sovereignty, belongs, as a matter of right, to every independent government, and needs no express conferment by the people before it can be exercised. It has even been described as the “power to destroy”. Such is the power of taxation that nobody can escape it, even after death!
Thus, it’s safe to say that spending or investing in Bitcoin may be subject to taxes. However, the tax treatment of a virtual currency transaction will depend on its usage.
Buying a dozen cheeseburgers using Bitcoin would entail income on the part of the burger chain, which may be subject to income tax (and if you eat all twelve yourself you might end up paying your doctor with Bitcoin, in which case a similar situation would arise!) Value Added Tax (VAT) may also be charged, as there was an exchange of goods.
Now, if the burger chain’s cook receives his or her wages in Bitcoin, their income may also be taxable (should their wages go beyond the compensation threshold under the TRAIN law).
Backtracking for a second, it’s also pertinent to ask how you, the purchaser, obtained the Bitcoins in the first place. Should you be a ‘miner’ then you’ll have earned them by solving a mathematical puzzle then adding a block to a blockchain.* If you subsequently sell or use the bitcoins you mined, the value received after deducting expenses may be treated as income.
On the other hand, if the Bitcoins you have were purchased from someone, this may be treated as an investment or property subject to capital gains tax.
As a final note, in the advisories issued in January and April 2018, the SEC advised that violators to the registration and disclosure requirements—where the virtual currencies offered are in the nature of a security—would be reported to the BIR so that the appropriate penalties and/or taxes can be assessed. This further solidifies the BIR’s authority on the taxation of cryptocurrencies. We’ll just have to wait for specific memoranda from the BIR.
We’ll keep you posted!
*If you’re feeling a little lost here, you might want to take a look at my previous article on Blockchain: http://mfbr.com.ph/2018/06/17/youve-heard-name-attorney-stephanie-tible-answers-faqs-blockchain-mallari-fiel-brillante-ronquillo/
The Law Firm of Mallari Fiel Brillante Ronquillo
The Bangko Sentral ng Pilipinas (BSP) and Securities and Exchange Commission (SEC) are the main regulators of virtual currency in the Philippines.
The virtual currency policies and regulations in the Philippines are discussed below.
Bangko Sentral ng Pilipinas
Section 3 of the New Central Bank Act provides that the BSP shall provide policy directions in the areas of money, banking, and credit. It shall have supervision over the operations of banks and exercise such regulatory powers as provided in this Act and other pertinent laws over the operations of finance companies and non-bank financial institutions performing quasi-banking functions, hereafter referred to as quasi-banks, and institutions performing similar functions.
At the onset, the BSP issued the Warning Advisory on Virtual Currencies dated 06 March 2014, wherein it defined a virtual currency as “a form of unregulated digital money, which is not issued or guaranteed by a central bank.”
Several years later, the BSP issued Circular No. 944, Series of 2017, dated 06 February 2017. This time, the BSP recognized that virtual currency (VC) systems have the potential to revolutionize delivery of financial services, particularly for payments and remittances, in view of their ability to provide faster and more economical transfer of funds, both domestically and internationally, and may further support financial inclusion.
With this development, the BSP issued guidelines for virtual currency exchanges.
In December 2017, the BSP issued the Advisory on the Use of Virtual Currencies (29 December 2017) encouraging existing and prospective virtual currency users to deal only with BSP-registered VC exchanges.
On 10 and 16 April 2018, the BSP issued advisories defining virtual currency as a type of digital currency created by a community of online users, stored in electronic wallets, and generally transacted online. The BSP reiterated its earlier stance that a virtual currency is not issued or guaranteed by central banks or government authorities. The advisories summarized the differences between a fiat, e-Money, and virtual currency.
Securities and Exchange Commission
Section 5 of the Securities and Regulation Commission provides:
“The XXX Commission shall have, among others, the following powers and functions:
(a) Have jurisdiction and supervision over all corporations, partnerships or associations who are the grantees of primary franchises and/or a license or a permit issued by the Government;
(b) Formulate policies and recommendations on issues concerning the securities market, advise Congress and other government agencies on all aspect of the securities market and propose legislation and amendments thereto; XXX”
In December 2017, the SEC issued the draft rules and regulations on crowdfunding. While said rules are not yet operative (as of this posting), the draft includes regulations on raising funds through Internet platforms (programs or applications accessible via the Internet or other similar electronic communication media through which a registered broker or a registered funding portal acts as an intermediary in a transaction involving the offer or sale of securities).
On 08 January 2018, the SEC issued the Advisory on Initial Coin Offerings. Virtual currency was defined as a digital representation of value issued and controlled by its developers and used and accepted among the members of a specific community or users. The SEC stated that some of the new virtual currencies follow the nature of a security, which is under the jurisdiction of the SEC and has to be registered and necessary disclosures have to be made for the protection of the investing public. This advisory, in turn, reinforces the possible applicability of the draft rules on crowdfunding to virtual currencies.
Further, under Section 3.1 of the Securities Regulation Code (SRC), “securities” are defined as shares, participation or interests in a corporation or in a commercial enterprise or profit-making venture and evidenced by a certificate, contract, instruments, whether written or electronic in character. Under Section 3.1(b) in relation to Section 26.3.5(d) of the 2015 IRR of the SRC, a security includes an “investment contract”, which is defined as a contract, transaction or scheme (collectively “contract”) whereby a person invests his money in a common enterprise and is led to expect profits primarily from the efforts of others. An investment contract is presumed to exist whenever a person seeks to use the money or property of others on the promise of profits.
Thus, where the virtual currency offered is in the nature of a security, it should be registered pursuant to Section 8 and 12 of the SRC. Failure to comply with the registration and disclosure requirements may lead to criminal prosecution.
In April 2018, the SEC issued an advisory warning the public against investing their money in investment products offered by unregistered online investment entities. The SEC enumerated the schemes employed by the unregistered entities, which includes the claim that investors may invest their funds in Bitcoin and other cryptocurrencies to justify their earning capacity. The SEC advisory also warned the public of the rampant internet-based Bitcoin and cryptocurrency Ponzi schemes.
With the rising popularity of virtual currencies in the Philippines and globally, it is of utmost importance for persons dealing with virtual currencies to remain vigilant as to the regulations imposed by the government. It is always better to arm yourself with knowledge!
Atty. Stephanie Tible.