Bureau of Local Government Finance Opinion

July 22, 2014 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION Mr. Ramon C. Tejero, Jr. Dealer, Brothers3 Gasoline Station 22 Windgate Villas Visayas Avenue Culiat, Quezon City Sir : This refers to your letter dated July 7, 2014 seeking opinion as regards the application for registration of your gasoline station, Brothers3 Gasoline Station, as a Barangay Micro Business Enterprise (BMBE) under Section 3 (a) of R. A. 9178. In search of a precedent case of a gasoline station that was previously indorsed as a BMBE enterprise, you cited a letter from this Bureau indorsing the application of MU Baguio Gasoline Station in Paraaque City, a dealer of TWA, Inc. (Flying V). It is claimed that the qualifications of MU Baguio Gasoline Station under its dealership agreement with TWA, Inc. is exactly the same as the provisions under your franchise agreement with SEAOIL Philippines, Inc., particularly on Section I (8) among others, which states as follows: "DEALER AS INDEPENDENT CONTRACTOR. This Agreement does not constitute SEAOIL as an agent, legal representative, joint venturer, partner, employee or servant of the DEALER for any purpose, whatsoever, or vice versa. It is understood between the parties hereto that the DEALER is an independent contractor with full control and direction of its business and operations, subject only to the conditions and obligations established by this Agreement. The DEALER shall not make any representations tending to create apparent agency, employment or partnership. Neither party will have the authority to act for nor bind the other in any matter to create debts or obligations binding the other. Neither the DEALER nor any person performing any duties or engaged in any work on the premises at the request of the DEALER shall be deemed an employee or agent of SEAOIL." It appears that in a letter dated May 27, 2014, the City Treasurer of Manila denied your application for registration as a BMBE for reason that you are a "franchisee or an accredited dealer of SEAOIL." In view of the foregoing a letter for reconsideration dated June 6, 2014 together with a copy of the Franchise Agreement with SEAOIL was sent to the City Treasurer. However, it is claimed that your application was again turned down under a letter dated June 11, 2014 for reason that what you have is a franchise agreement and not a dealership agreement without giving due credit to the fact that the terms of the two agreements are basically the same and the real difference only lies on the title. In this connection, quoted hereunder is the provision of Department Order No. 17-04 dated April 20, 2004 of the Department of Finance prescribing the Guidelines to Implement the Registration of Barangay Micro Business Enterprises and the Availment of Tax Incentives under R. A. 9178, Otherwise Known As The "Barangay Micro Business Enterprises (BMBEs) Act Of 2002: " Section 1. Who Can Register as a BMBE. One can register as a BMBE if it is a business entity or enterprise, whether operated as a sole proprietorship or a corporation, partnership, cooperative or association, organized/incorporated and existing under Philippine laws: "(a) Engaged in the production, processing or manufacturing of products or commodities, including agro-processing, trading and services, and which activities are barangay-based and micro-business in nature and scope : Provided , That "services" shall exclude those rendered by (i) natural persons who are duly licensed by the government after having passed a government licensure examination in connection with the exercise of one's profession, and (ii) juridical persons such as partnerships or corporations engaged in consultancy, advisory and similar services where the performance of such services are essentially carried out through licensed professionals; "(b) Whose total assets , real or personal, inclusive of those arising from loans but exclusive of the land on which the particular business entity's office, plant and equipment are situated, shall not be more than Three Million Pesos (3,000,000.00) or as may be adjusted by the Small and Medium Enterprises Development (SMED) Council as mandated under R. A. 6977 as amended by R. A. 8289: Provided , That for the purpose of registering as a BMBE, the assets must be owned and used for the conduct of its business as such BMBE. "A business enterprise shall be considered "barangay-based" if (i) the majority of its employees are residents of the municipality where its principal place of business is located; or (ii) its principal activity consists in the application/use of a particular skill peculiar to the locality or of raw materials predominantly sourced from the area; or (iii) its business operations are confined within the territorial jurisdiction of the municipality or LGU in which its principal place of business is located: Provided, however, That the enterprise may establish warehouses, buying stations, sales outlets, and booking or administrative offices anywhere in the Philippines, subject to pertinent rules and registration requirements of the concerned LGUs and other government agencies where such warehouses, outlets, stations or offices are established. "It shall be considered "micro-business in nature and scope" if: (i) its principal activity is primarily for livelihood, or determined by the SMED Council or DTI as a priority area for development or government assistance; (ii) the enterprise is not a branch, subsidiary, division or office of a large scale enterprise ; and (iii) its policies and business modus operandi are not determined by a large scale enterprise or by persons who are not owners or employees of the enterprise." (Underscoring supplied.) The abovequoted Section 1 of Department Order (DO) No. 17-04 of the Department of Finance (DOF) is clear on the requirements for an enterprise to be considered as "micro-business in nature and scope. Accordingly, a business entity applying for registration under the BMBE law will have to comply with all the requirements embodied under the aforecited Section 1 of DOF DO No. 17-04 to qualify as a Barangay Micro Business Enterprise, in which case, the City Treasurer has no option but to register and issue a Certificate of Authority to BMBE applicants like Brothers3 Gasoline Station. We hope that this will help clarify matters. Very truly yours, (SGD.) SALVADOR M. DEL CASTILLO OIC-Executive Director