Whether the Acquisition, Development and Disposal of Property through a JV by SSS May Be Considered Part of Its Ordinary Course of Business Exempted from the 2013 Revised NEDA JV Guidelines

DOJ OPINION NO. 09, s. 2020 February 19, 2020 Secretary Ernesto M. Pernia Director-General National Economic and Development Authority NEDA-sa-Pasig, 12 Saint Josemaria Escriva Drive Ortigas Center, Pasig City 1605 Dear Secretary Pernia : This is with regard to your request for opinion on the exemption of joint venture activities of the Social Security System (SSS) under Section 4 (b) (8) of Republic Act (R.A.) No. 11199, otherwise known as the "Social Security Act of 2018," from the Revised Guidelines and Procedures for Entering into Joint Venture (JV) Agreements between Government and Private Entities enacted pursuant to Executive Order (E.O.) No. 423 dated 30 April 2005 ("2013 Revised NEDA JV Guidelines"). HTcADC In your letter, you stated the following: 1. Section 4.2 of the 2013 Revised NEDA JV Guidelines provides that the same shall not apply to the following: a. Transactions of GFIs in the ordinary course of business as part of their normal and ordinary banking, financial or portfolio management operations; b. JV activities of government corporate entities in the exercise of their primary mandate to dispose government assets or properties; and c. JV activities or undertakings of the Local Government Units (LGUs). (emphasis added) 2. SSS is classified as a Government Financial Institution (GFI) pursuant to Section 3 (m) of R.A. No. 10149, otherwise known as the "GOCC Governance Act of 2011." 1 3. Under Section 4 (b) (8) of the Social Security Act of 2018, the SSS shall have the power to "acquire, develop and dispose of property, real or personal, on its own, or through a joint venture arrangement with the public and/or private sector, which may be necessary or expedient for the attainment of the purposes of this Act." This is without prejudice to the power of the Social Service Commission under Section 4 (a) (11) of the same law to "approve, confirm, pass upon or review any and all actions of the SSS in the proper and necessary exercise of its powers and duties." Based on the foregoing premises, you are requesting our opinion on whether the acquisition, development and disposal of property through a joint venture arrangement by SSS under Section 4 (b) (8) of the Social Security Act of 2018 may be considered as part of its ordinary course of business, which are exempted from the applicability of the 2013 Revised NEDA JV Guidelines. To begin with, pursuant to the principle of contemporanea expositio est optima et fortissima in lege ("the contemporary construction is strongest in law") the contemporaneous construction placed upon the statute by an executive or administrative officer called upon to execute or administer such statute is generally accorded great respect by the courts. 2 The reason for this is explained in Nestl Philippines, Inc. vs. Court of Appeals 3 in this wise: "The rationale for the rule relates not only to the emergence of the multifarious needs of a modern and modernizing society and the establishment of diverse administrative agencies for addressing and satisfying those needs; it also relates to the accumulation of experience and growth of specialized capabilities by the administrative agency charged with implementing a particular statute. In Asturias Sugar Central, Inc. vs. Commissioner of Customs , the Court stressed that executive officials are presumed to have familiarized themselves with all the considerations pertinent to the meaning and purpose of the law, and to have formed an independent, conscientious and competent expert opinion thereon. The courts give much weight to the government agency or officials charged with the implementation of the law, their competence, expertness, experience and informed judgment, and the fact that they frequently are the drafters of the law they interpret ." (emphases added) Applying the said principle to this case, the interpretation of NEDA of the provisions of the JV Guidelines subject of this query generally carries great weight even over than this Department's opinion, because NEDA was the author of the Guidelines and the implementor thereof. Nevertheless, since NEDA has elevated the issue to this Department, below is our opinion on the matter as requested. We note that there is no definition of the phrase " ordinary course of business " in the 2013 Revised NEDA JV Guidelines. However, the National Internal Revenue Code of 1997 provides a definition for the phrase " in the course of trade or business " in the 3rd paragraph of Section 105 thereof. Said definition reads as follows: "The phrase 'in the course of trade or business' means the regular conduct or pursuit of a commercial or an economic activity, including transactions incidental thereto , by any person regardless of whether or not the person engaged therein is a non-stock, nonprofit private organization (irrespective of the disposition of its net income and whether or not it sells exclusively to members or their guests), or government entity." (emphasis added) Jurisprudence involving foreign corporations, which discussed the phrase "ordinary business," also provides some guidelines that can help in understanding the phrase "ordinary course of business." In Far East International Import and Export Corporation v. Nankai Kogyo Co., Ltd., et al. , 4 the Supreme Court held that where a single act or transaction is not merely incidental or casual but indicates the foreign corporation's intention to do other business in the Philippines, said single act or transaction constitutes doing or engaging in or transacting business in the Philippines. In MR Holdings, Ltd. v. Sheriff Carlos P. Bajar , 5 the Supreme Court, after examining the definition of "doing business" in various statutes, including R.A. No. 7042 6 and R.A. No. 5455, 7 stated that the common denominator of these definitions is the concept of "continuity." In Commissioner of Internal Revenue v. Magsaysay Lines, Inc. , 8 citing Imperial v. Collector of Internal Revenue , 9 which you mentioned in your letter, the Supreme Court stated that "[w]hat is clear therefore, based on aforecited jurisprudence, is that 'course of business' or 'doing business' connotes regularity of activity." aScITE Focusing now on the joint venture activities of SSS, which are the subject of this query, Section 4 (b) (8) of the Social Security Act of 2018 provides that the SSS has the power "[t]o acquire, develop and dispose of property, real or personal, on its own, or through a joint venture arrangement with the public and/or private sector, which may be necessary or expedient for the attainment of the purposes of this Act." One of the purposes of the Act, as provided in Section 2 thereof, is to ensure the "maximum profitability of investible funds and resources of the program." Hence, the joint venture activities of SSS under Section 4 (b) (8) are one of the means that can be used by SSS, in the ordinary and regular course of its business, to achieve the purposes of the Social Security Act of 2018, which include the maximum profitability of the funds and resources of the program. We note that SSS holds all its assets in a fiduciary capacity with an obligation towards it members and pensioners to not merely safeguard the same, but to grow them in order to support the future of the fund. With this, it can be said that the joint venture activities of SSS under Section (4) (b) (8) of the Social Security Act of 2018 may be considered as transactions in the ordinary and regular course of business of SSS. As such, they are exempted from the applicability of the 2013 Revised NEDA JV Guidelines. Please be guided accordingly. Very truly yours, (SGD.) MENARDO I. GUEVARRA Secretary Footnotes 1. R.A. No. 10149, Section 3 (m) Government Financial Institutions (GFIs) refer to financial institutions or corporations in which the government directly or indirectly owns majority of the capital stock and which are either: (1) registered with or directly supervised by the Bangko Sentral ng Pilipinas; or (2) collecting or transacting funds or contributions from the public and places them in financial instruments or assets such as deposits, loans, bonds and equity including, but not limited to, the Government Service Insurance System and the Social Security System . (emphasis added) 2. Agpalo, Statutory Construction, p. 190. 3. G.R. No. 86738, 13 November 1991, 203 SCRA 504 (1991). 4. G.R. No. L-13525, 30 November 1962. 5. G.R. No. 138104, 11 April 2002. 6. Otherwise known as the "Foreign Investment Act of 1991." 7. Entitled "An Act to Require that the Making of Investments and the Doing of Business within the Philippines by Foreigners or Business Organizations Owned in Whole or in Part by Foreigners Should Contribute to the Sound and Balanced Development of the National Economy on a Self-Sustaining Basis, and for Other Purposes." 8. G.R. No. 146984, 28 July 2006. 9. Commissioner of Internal Revenue v. Magsaysay Lines, Inc. et al. , G.R. No. 146984, 28 July 2006, and Imperial v. Collector of Internal Revenue , G.R. No. L-7924, 30 September 1955.