Applicability of R.A. No. 7656 or the Dividend Law on the Civil Aviation Authority of the Philippines

DOJ OPINION NO. 028, s. 2016 April 29, 2016 Cesar V. Purisima Secretary of Finance Department of Finance Roxas Boulevard cor. Pablo Ocampo, Sr. St., Manila 1004 Dear Secretary Purisima : This refers to your letter dated 29 September 2015, requesting for an opinion on the applicability of Republic Act No. 7656, otherwise known as "An Act Requiring Government-Owned or -Controlled Corporations ("GOCC") to Declare Dividends under Certain Conditions to the National Government" or the Dividend Law, on the Civil Aviation Authority of the Philippines ("CAAP"). On 8 April 2015, the Department of Finance ("DOF") sent CAAP a collection letter requiring the remittance to the Bureau of the Treasury ("BTr") of (1) PhP3,374.85 million as payment of back dividends; (2) PhP992.20 million as dividends for CY 2014 representing 50% of net earnings; and (3) PhP2,286.17 million as extraordinary dividends. CAAP, in its letters dated 21 April 2015 and 3 August 2015, however, claims exemption from the coverage of R.A. No. 7656, citing Section 15 of the CAAP Charter (R.A. No. 9497) which provides: Sec. 15. Fiscal Autonomy. The Authority shall enjoy fiscal autonomy. All moneys earned by the Authority from the collection/levy of any and all such fees, charges, dues, assessments and fines it is empowered to collect/levy under this Act shall be used solely to fund the operations of the Authority. The utilization of any funds coming from the collection and/or levy of the Authority shall be subject to the examination of the Congressional Oversight Committee. 1 It is the DOF's position, however, that R.A. No. 9497 cannot be interpreted to extend exemption to CAAP, absent any express provision exempting it from the provisions of R.A. No. 7656. Hence, this request. For purposes of this query, it is our position that CAAP is not covered by R.A. No. 7656, as it is not a GOCC. R.A. No. 7656 applies only to GOCCs which are defined as "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." 2 The definition also includes financial institutions, owned or controlled by the National Government, but shall exclude acquired asset corporations, state universities, and colleges. 3 Section 3 of R.A. No. 7656 requires GOCCs to declare and remit at least fifty percent (50%) of their annual net earnings as dividends to the National Government, viz. 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. 4 In Manila International Airport Authority ("MIAA') v. Court of Appeals, the Supreme Court held that for an entity to be classified as a GOCC, it has to be "organized as a stock or non-stock corporation." 5 Two requisites must concur for an entity to be considered a stock corporation, viz. :(1) it has capital stock divided into shares; and (2) it is authorized to distribute dividends and allotments of surplus and profits to its stockholders. 6 For an entity to be classified as a non-stock corporation, it must have members and must not distribute any part of its income to its members. 7 The Court, in the aforementioned case, held that MIAA is not a GOCC. Here, it appears that CAAP, similar to MIAA, is not a stock corporation because it has no capital stock divided into shares. CAAP also has no stockholders or voting shares, and the CAAP Charter does not authorize the distribution of dividends and allotments of surplus and profits. Section 14 of the CAAP Charter provides that CAAP shall have an authorized capital stock, but does not authorize the distribution of dividends, viz. : Sec. Capitalization. The Authority shall have an authorized capital stock of Fifty Billion Pesos (PhP50,000,000,000.00) which shall be fully subscribed by the Republic of the Philippines. The subscription of the National Government shall be paid as follows: (a) The unexpected balances of appropriations in the current General Appropriations Act and other acts in force upon approval hereof, pertaining to, held or used by, the ATO; (b) The value of existing assets of the ATO, which shall be determined by an independent and qualified appraiser or appraisers within six (6) months from the effectivity of this Act, and after deducting the loans and other liabilities of the ATO at the time of takeover of the assets and properties; and (c) Such amounts as may be appropriated from time to time from the funds of the National Treasury, including any outlay from the infrastructure program of the National Government. 8 Neither can CAAP be considered a non-stock corporation. A non-stock corporation is "one where no part of its income is distributable as dividends to its members, trustees or officers." 9 A non-stock corporation must have members, but are not allowed to distribute any of its income to its members. 10 Moreover, non-stock corporations are usually "formed or organized for charitable, religious, educational, professional, cultural, fraternal, literary, scientific, social, civic service, or similar purposes, like trade, industry, agricultural and like chambers, or any combination thereof." 11 CAAP does not have any members, and is not organized for any of the aforesaid purposes. Instead, CAAP is an independent regulatory body with quasi-judicial and quasi-legislative powers and possessing corporate attributes. 12 We trust that this is useful. Very truly yours, (SGD.) EMMANUEL L. CAPARAS Secretary of Justice Footnotes 1. An Act Creating the Civil Aviation Authority of the Philippines, Authorizing the Appropriation of Funds Therefor, and for Other Purposes [Civil Aviation Authority Act of 2008], Republic Act No. 9497, 15 (2008). 2. An Requiring Government-Owned or -Controlled Corporations to Declare Dividends under Certain Conditions to the National Government, and for Other Purposes [Dividend Law], Republic Act No. 7656, 2 (b) (1993). 3. Id. 4. Id. 3. 5. Manila International Airport Authority v. Court of Appeals, G.R. No. 155650 (July 20, 2006). 6. THE CORPORATION CODE OF THE PHILIPPINES, Batas Pambansa Blg. 68, 3 (1980); Republic v. City of Paraaque, G.R. No. 191109 (July 18, 2012). 7. Id. citing Philippine Fisheries Development Authority v. Court of Appeals, G.R. No. 169836 (July 31, 2007). 8. Civil Aviation Authority Act of 2008, 14. 9. THE CORPORATION CODE OF THE PHILIPPINES, 87. 10. Manila International Airport Authority, G.R. No. 155650. 11. THE CORPORATION CODE OF THE PHILIPPINES, 88. 12. Civil Aviation Authority Act of 2008, 4.