Mr. Royce Lane

June 23, 1998 Mr. Royce Lane Suite 108, Unit 102 Amberland Plaza Ortigas Center, Pasig City S i r : This refers to your letters dated May 20, June 5, and June 11, 1998 raising the issue on whether the activity mentioned therein is deemed trading in gold in the Philippines and whether such activity needs to be licensed by the SEC. To summarize the facts stated in your three (3) letters to the Commission, American company is in the business of retailing gold products in America. Philippine purchasers send order forms and apply for demand drafts from a Philippine bank but the drafts are drawn against an American Bank. It is your contention that there is no trading in the Philippines as the sale and settlement take place in American soil. The statement in your third letter stating that there is a rival/opposing group that might approach the SEC to make allegations that the above activity is doing business the Philippines without a license, makes your query a controversial issue. In this connection please be advised that the Commission does not, as a matter of policy, render opinions on queries or issues which appear to be potential cases for litigation or which could only be ascertained and resolved after due hearing or presentation of evidences. The opinion which may be rendered thereon would not be binding upon who would in all probability, if the opinion happens to be adverse to their interest, take issue therewith and contest it before the proper forum. In view thereof, the Commission refrains from rendering opinion to your query so that it will not be estopped to decide any controversy pertaining thereto in the event it will develop into a case litigated before this Commission. However, for purposes for information only, the following is imparted. As a general rule, a foreign company shall have the right to transact business in the Philippines only after it shall have obtained a license to do business in the Philippines in accordance with the provisions of the Corporation Code and Foreign Investments Act. The real test in determining whether a foreign corporation is transacting business in the Philippines is to ask this question: Does the activity of the company fall within the definition of " doing business " as defined under RA 7042, as amended by RA 8179, otherwise known as the Foreign Investments Act of 1991, quoted hereunder: "d) the phrase " doing business " shall include soliciting orders, service contracts, opening offices, whether called "liaison" offices or branches; appointing representatives or distributors domiciled in the Philippines or who in any calendar year stay in the country for a period or periods totalling one hundred eighty (180) days or more; participating in the management, supervision or control of any domestic business, firm, entity or corporation in the Philippines; and any other act or acts that imply a continuity of commercial dealings or arrangements, and contemplate to that extent the performance of acts or works, or the exercise of some of the functions normally incident to, and in progressive prosecution of, commercial gain or of the performance of acts or works, or the exercise of some of the functions normally incident to, and in progressive prosecution of, commercial gain or of the purpose and object of the business organization: Provided, however, That the phrase "doing business" shall not be deemed to include mere investment as a shareholder by a foreign entity in domestic corporations duly registered to do business, and/or the exercise of rights as such investor; nor having a nominee director or officer to represent its interest in such corporation; nor appointing a representative or distributor domiciled in the Philippines which transacts business in its own name and for its own account;" (Emphasis supplied) Please take note that the above definition admits some exceptions . llcd In addition to the foregoing information, attached herewith is xerox copy of the letter of the Bangko Sentral dated June 22, 1998 in reply to the commission's request for comments on the issue raised, mentioning therein the relevant provisions pertaining to gold trading. Very truly yours, (SGD.) PERFECTO R. YASAY Chairman