Atty. Ruby U. Alvarez

July 16, 2001 SEC OPINION Atty. Ruby U. Alvarez C/o ARC LAW, Unit 2206, Medical Plaza-Ortigas SEC Bldg., E. de los Santos Ave., City of Mandaluyong M a d a m : This has reference to your letter dated March 26, 2001 informing the Commission of your intention to form a corporation (Project Company) which shall engage in the business of extraction and treatment of water. It appears that the proposed industry to be engaged in by the Project Company is classified as "Exploration, development and utilization of natural resources" ([Art. XII, Sec. 2 of the Constitution] List A, par 15 of the 4th Regular Foreign Negative List") which allows 40% foreign equity. The capital of said Project company shall have the following composition: 70% of its subscribed capital shall be owned by Corporation A, a 60% Filipino and 40% foreign owned entity. The remaining 30% of the capital of the Project Company will be owned by a foreign company. You are now seeking confirmation of your view that the proposed corporation is of Filipino nationality. Applying the control test in subject Project Company, it may well-be said that since the proposed equity structure of said company shall be 70% Filipino and 30% foreign, it is of Philippine nationality. This conclusion finds support in the clear and plain language of said test to the effect that shares belonging to corporations or partnerships at least 60% of the capital of which is owned by Filipino citizens shall be considered of Philippine nationality. Verily, in the project company the controlling equity is even higher by ten (10%) percent than the required minimum percentage of only 60% under the control test rule. Hence, it cannot be doubted that the Project company is a Filipino entity. This Office, however, cannot confirm whether 70% of the Project Company shall be actually owned by Filipinos due to the hypothetical nature of the inquiry. There is no concrete figure cited in the letter-query on which the percentage shall be based nor itemized distribution of the equity holdings of the stockholders are indicated therein. Very truly yours, (SGD.) FE ELOISA C. GLORIA Commissioner