DOJ Opinion No. 021, s. 1998

DOJ OPINION NO. 021 , s. 1998 February 4, 1998 Undersecretary Ma. Cecilia G. Soriano Department of Finance Manila M a d a m : This refers to your request for opinion as to whether or not subsidiary corporations which are owned and/or controlled by government-owned or controlled corporations (GOCCs) up to the extent of at least 51% of their capital stock are government-owned and/or controlled corporations and, therefore, can be required to remit dividends directly to the National Government under the provisions of R.A. No. 7656. LexLib You state that under the Implementing Rules and Regulations (IRR) of R.A. No. 7656 (the Dividend Law), subsidiary corporations of GOCCs do not remit dividends directly to the National government but to their parent corporations; that such remittances, however, are oftentimes eaten up by losses of the parent GOCCs, thereby depriving the National Government of its rightful share in said dividends; that the Department of Finance is presently looking for avenues where income from dividends of GOCCs can be increased; and that one measure you have identified is the amendment of the IRR of R.A. No. 7656 to include provisions for remittance of dividends by subsidiary corporations directly to the National Government. We answer your query in the affirmative subject to the discussion hereunder set forth. We believe that subsidiaries of GOCCs are GOCCs themselves within the coverage of R.A. No. 7656. This conclusion is quite apparent from the very definition of the term "government-owned or controlled corporations" in R.A. No. 7656. It provides: "SEC. 2. Definition of Terms . As used in this Act, the term: xxx xxx xxx (b) 'Government-owned or controlled corporations' refers to corporations organized as a stock or non-stock corporation vested with functions relating to public needs, whether governmental or proprietary in nature, and owned by the Government directly or through its instrumentalities either wholly or , where applicable as in the case of stock corporations , to the extent of at least fifty one percent (51%) of its capital stock . This term shall also include financial institutions, owned or controlled by the National Government, but shall exclude acquired asset corporations, as defined in the next paragraphs, state universities, and colleges." (Emphasis supplied.) The aforequoted definition of a GOCC is substantially a reiteration of the definition of the same term in Administrative Order No. 59 ("Rationalizing the Government Corporate Sector"), P.D. No. 2029 ("Defining Government-Owned or Controlled Corporations and Identifying Their Role in National Development"), and in Section 2(13), Introductory Provisions, of the 1987 Administrative Code (E.O. No. 292). As defined, a GOCC refers to a corporate body which is wholly owned by the Government , or in the case of stock corporations, to the extent of at least 51% of its capital stock , either directly or through its instrumentalities . The term "instrumentality" is defined in Section 2(10) [Introductory Provisions) of the 1987 Administrative Code as referring to any agency of the National Government not integrated within the Department framework, vested with special jurisdiction, endowed with corporate powers, and enjoying operational autonomy. The term includes a regulatory agency, chartered institution, or GOCC . Thus, a subsidiary of a GOCC is owned by the government, albeit indirectly through its parent GOCC. Considering that the Dividend Law (R.A. No. 7656) mandates the declaration of dividends by a GOCC to the National Government, and since a GOCC by definition, includes a subsidiary of such GOCC, there is legal basis for the conclusion that a subsidiary which is owned wholly or to the extent of at least 51% of its capital stock by a GOCC, is covered by the Dividend Law and may be required to declare and remit dividends directly to the National Government. prcd It should be noted, however, that there is one subsidiary of a GOCC which is exempt from the coverage of the Dividend Law and it is a subsidiary which has been organized exclusively to own and manage, or lease, or operate specific physical assets acquired by a government financial institution in satisfaction of debts incurred therewith and which assets are required to be disposed of to private ownership within a specified period of time (see Sec. 2[c], R.A. No. 7656). Other subsidiaries, not so organized, are perforce covered by said law. Accordingly, and in view of the explicit provisions of Section 3 of R.A. No. 7656, which reads: "SEC. 3. Dividends . All government-owned or controlled corporations shall declare and remit at least fifty percent (50%) of their annual net earnings as cash, stock or property dividends to the National Government. This section shall also apply to those government-owned or controlled corporations whose profit distribution is provided by their respective charters or by special law, but shall exclude those enumerated in Section 4 hereof: Provided , That such dividends accruing to the National Government shall be received by the National Treasury and recorded as income of the General Fund." (Emphasis supplied.) we believe that subsidiary corporations owned or controlled by GOCCs up to at least 51% of their capital stock, being GOCCs themselves, can be required to remit dividends directly to the National government, and notwithstanding the fact that such corporations are registered with the SEC and are governed by the Corporation Code. The declaration of dividends, however, shall be in accordance with the pertinent provisions of the Corporation Code (B.P. Blg. 68), specifically Section 43 thereof which provides: "SEC. 43. Power to declare dividends . The board of directors of a stock corporation may declare dividends out of the unrestricted retained earnings which shall be payable in cash, in property, or in stock to all stockholders on the basis of outstanding stock held by them: Provided, That any cash dividends due on delinquent stock shall first be applied to the unpaid balance on the subscription plus costs and expenses, while stock dividends shall be withheld from the delinquent stockholder until his unpaid subscription is fully paid; Provided, further, That no stock dividend shall be issued without the approval of stockholders representing not less than two-thirds (2/3) of the outstanding capital stock at a regular or special meeting duly called for the purpose." Please be guided accordingly. Very truly yours, (SGD.) SILVESTRE H. BELLO III Acting Secretary