IRR-RA 7656 Implementing Rules and Regulations to Republic Act No. 7656

January 28, 1994

IMPLEMENTING RULES AND REGULATIONS TO REPUBLIC ACT NO. 7656, "AN ACT REQUIRING GOVERNMENT-OWNED AND/OR CONTROLLED CORPORATIONS TO DECLARE DIVIDENDS UNDER CERTAIN CONDITIONS TO THE NATIONAL GOVERNMENT, AND FOR OTHER PURPOSES"

Pursuant to Section 7 of Republic Act No. 7656, which was approved on 9 November 1993, the following rules and regulations are hereby promulgated to implement the provisions of the said Act:

SECTION 1. Title. — These guidelines shall be known as the "Implementing Rules and Regulations to Republic Act No. 7656", hereinafter referred to as the Rules. ESTaHC

SECTION 2. Declaration of Policy. — It shall be the policy of the State that in order for the National Government to realize additional revenues, government-owned and/or controlled corporations, without impairing their viability and the purposes for which they have been established, shall share a substantial amount of their net earnings to the National Government.

SECTION 3. Definition of Terms. — As used in these Rules, the term:

(a) "Act" refers to Republic Act No. 7656.

(b) "National Government" refers to the entire machinery of the central government, as distinguished from the different forms of local governments.

(c) "Government-owned and/or controlled corporations", hereinafter also referred to as GOCCs, refers to corporations organized as a stock or non-stock corporation vested with, functions relating to public needs, whether government or proprietary in nature, and owned by the National 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. This term shall also include financial institutions, owned or controlled by the National Government, but shall exclude acquired assets corporations, as defined in the next paragraph, state universities, and colleges.

(d) "Acquired asset corporation" refers to a corporation: (1) which is under private ownership, the voting or outstanding shares of which were: (i) conveyed to the Government or to a government agency, instrumentality of corporation in satisfaction of debts whether by foreclosure or otherwise, or (ii) duly acquired by the Government through final judgment in a sequestration proceeding; or (2) which is a subsidiary of a government corporation organized exclusively to own and manage, or lease, or operate specific physical assets acquired by a government financial institution in satisfaction of debts incurred therewith, and which in any case by law or enunciated policy is required to be disposed of to private ownership within a specified period of time.

(e) "Net Earnings" shall mean income derived from whatever source, whether exempt or subject to tax, net of deductions allowed under Section 29 of the National Internal Revenue Code, as amended, and income tax, and other taxes paid thereon, but in no case shall any reserve for whatever purpose be allowed as a deduction from net earnings.

(f) "Reserves" shall refer to the portion of retained earnings of a GOCC that has been appropriated by its governing board for a specific purpose, i.e., legal or contractual obligation, plant expansion, and other contingencies.

(g) "Dividends" refers to distributions to stockholders of a corporation in proportion to the number of shares held by the respective owners which may take the form of cash, shares of the company's own stock or property.

(h) "Property" refers to land and buildings readily convertible into cash within one (1) year, securities issued by the National Government, and such other marketable securities to be approved by the Secretary of Finance.

(i) "Subsidiaries" refers to a corporations either created by law or incorporated and organized under the Corporation Code which is owned by a GOCC as herein defined 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.

(j) "Dividend year" refers to the calendar year during which net earnings were realized by a GOCC.

(k) "DOF", "COA", and "BTr" refer to the Department of Finance, the Commission on Audit and the Bureau of the Treasury, respectively.

SECTION 4. Coverage. — These Rules shall apply to all GOCCs and government financial institutions. It shall also apply to those GOCCs whose profit distribution is provided by their respective charters or by special law: Provided, however, that GOCCs created or organized by law to administer real or personal properties or funds held in trust for the use and the benefit of its members shall not be covered by these Rules such as, but not limited to:

(a) Government Service Insurance System; DSAICa

(b) Social Security System;

(d) Employees Compensation Commission;

(e) Overseas Workers Welfare Administration; and

(f) Philippine Medical Care Commission.

Provided, finally, that net earnings derived from operations funded by monies not held in a fiduciary or trustee capacity by the abovecited GOCCs shall be subject to declaration of dividends as herein required.

SECTION 5. Dividends. — All GOCCs shall declare and remit at least fifty percent (50%) of their annual net earnings as cash, stock and/or property dividends to the National Government, subject to the following:

(a) As a general rule, GOCCs shall declare and remit dividends in the form of cash in order to raise additional revenues for the National Government, GOCCs intending to remit part of their dividends other than in the form of cash shall consult the Secretary of Finance prior to its declaration.

(b) In the case of a stock corporation, GOCCs may declare stock dividends to the National Government provided that its authorized capitalization is not fully paid-up. Stock dividends shall be valued at par or, in its absence, the book value of shares based on the audited financial statements of the GOCC.

(c) Land and buildings declared as property dividends shall include assets which are owned, but not used in operation, by a GOCC. The property shall be free from all liens and encumbrances and not subject to any adverse judicial process at the time of conveyance. The value of the property shall be based on its fair market value as approved by the COA.

(d) Government-owned banks shall declare and remit dividends to the National Government upon prior approval by the Bangko Sentral ng Pilipinas pursuant to Central Bank Circular No. 1364, s. 1992.

(e) GOCCs shall ensure that their subsidiaries remit to them corresponding dividends in accordance with the Corporation Code of the Philippines. Dividends received by parent GOCCs shall form part of their net earnings.

SECTION 6. Mode of Remittance. — The following procedure and schedule shall govern the declaration and remittance of dividends to the National Government:

(a) GOCCs shall declare and remit to the BTr at least fifty (50) percent of their dividends on or before March 31 following the dividend year based on financial statements to be submitted for audit by the COA.

(b) GOCCs remitting their dividends in the form of the company's own stock shall deliver to the BTr the stock certificates with the aggregate value corresponding to the dividend declaration on or before March 31 following the dividend year. GOCCs shall ensure the recording of said dividend declaration in their stock and transfer book or its equivalent.

(c) In the case of property dividends, GOCCs shall negotiate or execute and deliver in the name of and to the Treasurer of the Philippines the necessary deed of transfer or other instrument of conveyance in favor of the National Government on or before March 31 following the dividend year. The remittance shall be supported with (i) the valuation report for the property as approved by COA, and (ii) a certification from the Chief Executive Officer of the GOCC that the property is free from liens, encumbrances and other adverse judicial processes.

(d) The balance of the dividend after any adjustments on the net earnings in accordance with the audited financial statements of the GOCC shall be remitted to the BTr within seven working (7) days after the issuance of Annual Audit Report by the COA. ACcDEa

(e Remittance of dividends by GOCCs shall in all cases be supported with the Net Earnings Statement of the GOCC, the details of the dividend computation as duly attested by the Chief Executive Officer and, as available, a copy of the annual audit report by the COA. These documents shall be submitted to the Treasurer of the Philippines, copy furnished to the Secretary of Finance.

(f) In the case of GOCCs which may encounter cash flow difficulties in remitting cash dividends to the National Government, the Secretary of Finance may approve an alternative schedule of payment not exceeding one (1) year based on the recommendation of the Corporate Affairs Group-Department of Finance. In this regard, said GOCCs shall submit in writing to the Department of Finance not later than February 15 their proposed payment scheme for the cash dividends due to the National Government together with the underlying justification.

(g) The BTr shall record the dividends as follows:

(1) Cash dividends — recorded as income to the General Fund;

(2) Property dividends — recorded as asset upon receipt of the property and income to the General Fund upon sale of the property;

(3) Stock dividends:

(i) For GOCCs whose shares are listed in the stock exchange, dividends shall be recorded as asset upon receipt of the shares of stock and the excess over the par value of shares as income to the General Fund upon the sale of the shares of stock;

(ii) For GOCCs whose shares are not listed in the stock exchange, dividends shall be recorded as income to the General Fund and as additional paid-up equity by the National Government to the GOCC upon issuance by the Department of Budget and Management of the corresponding Advice of Allotment based on the provisions of the General Appropriations Act.

(h) Without preluding the imposition of sanctions provided in these Rules, the Department of Budget and Management may cause the offsetting of the amount of dividends due to the National Government from any budgetary releases to the concerned GOCC, excluding loan proceeds programmed for the year.

SECTION 7. Flexibility Clause. — In the interest of national economy and general welfare, the percentage of annual net earnings that shall be declared by a GOCC may be adjusted by the President of the Philippines upon recommendation by the Secretary of Finance. For this purpose, GOCCs may propose said adjustments to the Department of Finance, through this purpose, GOCCs may propose said adjustments to the Department of Finance, through the Corporate Affairs Group, on or before February 15 of each year. Any adjustment in the percentage of annual earnings that shall be declared by a GOCC as dividends to the National Government may, among other financial and fiscal considerations, consider the need for revenues by the National Government and the level of the corporation's liquidity.

SECTION 8. Responsibility and Sanctions. — The governing board of the GOCC shall be responsible for approving the declaration of dividends in compliance with the Act. The chief executive and finance officers of the GOCC shall be responsible for the remittance of dividends based on the declaration made by the governing board. GOCCs which fail to declare and remit dividends on the stipulated deadlines provided in Section 6 hereof shall be assessed a penalty charge for late payment equivalent to the prevailing 364-day regular Treasury Bill rate plus five percent (5) on the dividend due. However, GOCCs who were granted approval by the Secretary of Finance to reschedule payment of dividends due based on Section 6(f) hereof shall be exempt from the penalty charge.

SECTION 9. Criminal Liabilities. — Any member of the governing board, the chief executive officer and the chief financial officer of a GOCC who violates any provision of these Rules, in addition to other sanctions provided by law, upon conviction thereof, shall suffer the penalty of a fine of not less than Ten thousand pesos (P10,000.00) but not more than three (3) years, or both, at the discretion of the court.

SECTION 10. Resolution of Related Issues. — All cases for clarification and those not covered by the provisions of these Rules shall be referred to the Department of Finance for resolution.

SECTION 11. Separability Clause. — If for any reason or reasons any part of the provisions of these Rules shall be deemed unconstitutional or invalid, other parts or provisions hereof which are not affected thereby shall continue to be in force and effect.

SECTION 12. Effectivity. — These Rules shall take effect immediately. DcaSIH

DONE in the City of Manila, this 28th day of January, 1994.

(SGD.) ERNEST C. LEUNGUndersecretaryDepartment of Finance