Roco Bunag Kapunan Migallos & Jardeleza

December 7, 1993 Roco Bunag Kapunan Migallos & Jardeleza 6th Flr.,Strata 200 Building Emerald Ave.,Pasig 1600 Metro Manila S i r : This refers to your letter of November 27, 1993 requesting opinion on the nationality of Philippine Phosphate Fertilizer Corporation (Philphos),a corporation registered with the Commission of which 50% of the outstanding capital is owned by the Republic of Nauru and 50% by the National Development Company (NDC). There are two concepts of determining the corporate nationality of a corporation: the "incorporation" and "control" concepts. Under the "incorporation concept",the nationality of a corporation is that of the state of incorporation regardless of the nationality of its shareholders. Thus, under this concept, subject corporation is a domestic corporation or a Filipino corporation in a sense that it was incorporated under Philippine laws. Under the "control concept",the nationality of the corporation depends on the nationality of the controlling stockholders. In determining the nationality of a corporation under the "control test",the following ruling was adopted by the Commission. " Shares belonging to corporations or partnerships at least 60% of the capital of which is owned by Filipino citizens shall be considered as of Philippine nationality, but if the percentage of Filipino ownership in the corporation or partnership is less than 60%,only the number of shares corresponding to such percentage shall be counted as of Philippine nationality. Thus, if 100,000 shares are registered in the name of a corporation or partnership at least 60% of the capital stock or capital, respectively, of which belong to Filipino citizens, all of said shares shall be recorded as owned by Filipinos. But if less than 60%,or say only 50% of the capital stock or capital of the corporation or partnership, respectively, belongs to Filipino citizens, only 50,000 shares shall be counted as owned by Filipinos and the other 50,000 shall be recorded as belonging to aliens." (Department of Justice Opinion, No. 18, S. 1989 dated January 19, 1989, emphasis supplied) This ruling is now expressly embodied under Section 3 of R.A. 7042, otherwise known as the Foreign Investment Act of 1991, quoted hereunder: a. the term " Philippine National " shall mean a citizen of the Philippines or a domestic partnership or association wholly owned by citizens of the Philippines; or a corporation organized under the laws of the Philippines of which at least sixty percent (60%) of the capital stock outstanding and entitled to vote is owned and held by citizens of the Philippines :or a trustee of funds for pension or other employee retirement or separation benefits, where the trustee is a Philippine national and at least sixty percent (60%) of the fund will accrue to the benefit of Philippine nationals ..." (Emphasis supplied) llcd Therefore, under the "control test concept" subject corporation is not considered a Filipino National since the Filipino equity participation is less than 60%. Please be advised accordingly. Very truly yours, (SGD.) ROSARIO N. LOPEZ Chairman