On March 23, the first Philippine microsatellite was launched in Cape Canaveral, Florida. A month after, on April 27, it was deployed into space. Born out of the need for the Philippines to have its own satellite following the costly acquisition of satellite images from other countries by the government, young Filipino engineers designed, developed, and assembled the DIWATA 1.
A dream coming into completion, the launch of the satellite is the beginning of the road towards Filipino’s exploration into space. As Filipinos begin to probe the freedom of outer space, they also begin to explore the galaxy of an anti-competitive economy. Last Aug. 8, Republic Act No. 10667, or commonly known as the “Philippine Competition Act” took effect. By enacting this law, the government aims to enhance economic efficiency and promote free and fair competition in trade, industry and all commercial economic activities. One of the highlights of the law is the penalizing all forms of anti-competitive agreements, abuse of dominant position and anti-competitive mergers and acquisitions for the purpose of advancing economic development.
The law covers any person or entity engaged in trade, industry and commerce in the Philippines. Also applicable are international trade that will directly, substantially and reasonably foreseeably affect the economy. Thus, acts not done locally are still covered by the law.
The same law gave birth to the Philippine Competition Commission (PCC) which is tasked to be the guardian of the Competition Act. Much like the legendary jedi council that keeps the force in balance or the Philippine Earth Data Resources Observation which will control and guide the DIWATA 1, the PCC will be the primary authority on competitive agreements and is mandated in implementing and enforcing the rules towards the upliftment of the national competition policy.
Moreover, under its Section 12(g), the PCC has the power to review proposed mergers and acquisitions, determine thresholds for notification, and determine the requirements and procedures for notification. With the exercise of this power, the mighty PCC can prohibit mergers and acquisitions that will substantially prevent, restrict or lessen competition in the relevant market.
A rookie in its field, the PCC was freshly organized on Feb. 1 and is still in the midst in drafting its implementing rules and regulations (IRR). To fill the void for the mean time, it issued Memorandum Circulars (MC) No. 16-001 and 16-002 as its transitory rules on Feb. 12 and 16 of this year respectively, which are already in effect at the time of this writing.
MC No. 16-001 was issued relating to the mergers and acquisitions executed or implemented after the effectivity of the Philippine Competition Act on Aug. 8 but before the issuance of the IRR. Here, the PCC exempts the parties to such mergers and acquisitions if the transaction is below P1 billion, from the obligation of notifying the PCC. But if the merger and acquisition transaction exceeds P1 billion and was executed or implemented after the effectivity of said MC but before the IRR, the parties shall notify the PCC with the following information: the parties, the authorized representatives of the parties to the transaction, a description of the businesses of the parties, the type of transaction, the consideration, the key terms of the transaction and the timing for the execution or implementation of the transaction.
Just days after the first MC, came another. MC 16-002 targeted mergers and acquisitions effected through the Philippine Stock Exchange executed and implemented after the effectivity of the law but before the effectivity of the IRR currently being worked on. Like its predecessor, MC 16-002 reiterates the compulsory notification of the PCC by the parties to a merger or acquisition agreement specially if one of the parties is a company whose shares of stock is listed in the Philippine Stock Exchange (PSE), or if the transaction exceeds P1 billion, or the transaction is required to be disclosed or notified to the PSE, or if the transaction comes after the effectivity of this MC but prior to the IRR.
The PCC is not alone in playing the role of a jedi knight for anti-competition mergers and acquisitions. It solicited help from the Philippine Stock Exchange (PSE) which shall regularly provide the PCC with a list of covered transactions. Moreover, the PSE is mandated to establish an information-sharing mechanism to aid the PCC in implementing its functions under RA 10667.
The transactions described in both MCs are deemed approved by the PCC. They are also afforded protection since these transactions may not be challenged except if there is false material information. Note that violation of the compulsory notification of the PCC will render the agreement void and the errant parties will be subject to an administrative fine of one to five percent of the value of the transaction.
Memorandum circulars as transitory rules are initial probes of the PCC in the making of refined rules of competition. With the PCC taking the first step, we can expect a more dynamic, transparent and competitive Philippine economy, like how we can expect a Philippine Space Agency in the future.
Anna Lea A. Barron is a supervisor from the tax group of KPMG R.G. Manabat & Co. (KPMG RGM&Co.), the Philippine member firm of KPMG International. KPMG RGM&Co. has been recognized as a Tier 1 tax practice, Tier 1 transfer pricing practice and Tier 1 leading tax transactional firm in the Philippines by the International Tax Review.
This article is for general information purposes only and should not be considered as professional advice to a specific issue or entity.
The views and opinions expressed herein are those of the author and do not necessarily represent the views and opinions of KPMG International or KPMG RGM&Co. For comments or inquiries, please email ph-inquiry@kpmg.com or rgmanabat@kpmg.com.