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What happens when a corporation is dissolved but the stockholders failed to liquidate the corporation and distribute the remaining assets of the corporation? May a stockholder who was deprived of his share in the remaining property demand to inspect the books of the corporation? Under Philippine laws, a corporation which has been dissolved, has three years after dissolution to continue as a body corporate but only for the purpose of liquidating its assets and winding up its affairs. During this three-year period, the corporate acts shall be limited to liquidation and it is no longer allowed to continue the business for which it was established. Dissolution of a corporation in the Philippines is quite complicated. In my long years of practice, I have seen corporate dissolution to take years and sometimes, decades. The long process requires convoluted stages of securing clearances from various government agencies. Of course, the most difficult of all the processes is getting the tax clearance which can take as long as the longest-running telenovela you can think of. Thus, it is not surprising that some stockholders become uninterested in the winding up process of their corporation and leave such task to a trusted business partner or consultant. Considering that most corporate liquidations can go beyond the three-year period, the right of such trustee to oversee the liquidation process until it is finally completed is valid even if it goes beyond the period. Sometimes, stockholders resort to dissolving a corporation as a solution to the problematic operations of the corporation or to end the disputes among the stockholders. Little do they know that it may actually exacerbate the problems and fan the flames of distrust among them. In one case (SEC-OGC Opinion No. 16-23 dated Oct. 5, 2016), it was represented that the stockholder has left the Philippines only to find out that their corporation which was supposed to have been dissolved actually continued business operations. Alleging that the assets of the dissolved corporation were never liquidated, the stockholder demanded access to the financial records and books of the corporation. However, the president of the corporation allegedly refused to grant access, noting that since the corporation has already been dissolved, the stockholder no longer has the right of inspection. The SEC refused to rule on the issues, saying that the case involves an intra-corporate controversy which is within the jurisdiction of the Regional Trial Courts. It, however, laid down related laws and jurisprudence for guidance and information. In the case of Clemente vs. Court of Appeals (G.R. No. 82407 March 27, 1995), the Supreme Court emphasized that the “(T)he termination of the life of a juridical entity does not by itself cause the extinction or diminution of the rights and liabilities of such entity... nor those of its owners and creditors.” In the case of Gokongwei vs. SEC, (G.R. No. L-45911, April 11, 1979), the Supreme Court explained that the right of inspection of the corporate books and financial records is an incident of the ownership rights of the stockholders over the assets and property of the corporation. It is necessary to afford the stockholder the right of self-protection. Such right exists even if the ownership is beneficial or equitable. The SEC also emphasized that the right should be exercised to protect the interest of the stockholders as owners such as where the purpose is to find out the actual financial condition of the corporation and how his investment is being used. As such, we can conclude that the right of the stockholder to inspect the financial records of the corporation is not terminated by the mere fact that the corporation has been dissolved. It should remain up to the time that the remaining assets are finally distributed to the stockholders. It is clear that in some cases, terminating the operations of a corporation to end the seemingly insurmountable problems often leads to new sets of challenges. The stockholders need to be ready for a long and uphill battle. Like any aspect of running a business, the stockholders should be vigilant in seeing through the stages of dissolution. They need to properly coordinate with the board of directors and/or trustees to ensure that the remaining assets are properly distributed among the stockholders. However, if all else fails, the stockholders may need to file a case in court to rule on the controversy and decide which party has the right to the remaining assets, if any. With all the changes being introduced by the new Duterte administration, perhaps it is also time to look at simplifying the dissolution process in the Philippines to better protect the rights of stockholders. Eleanor Lucas Roque is the head and principal of the Tax Advisory and Compliance Division of Punongbayan & Araullo.

With this year’s promising growth in our GDP, the Philippines has been dubbed the fastest-growing economy among Asian nations. We can achieve more if we are able to continuously improve on areas that are critical to growing the economy. The difficulty of doing business has been our long standing problem. Although the Philippines moved up to no. 99 from no. 103 last year in World Bank’s “doing business” ranking, the Philippines dropped from number 165 to number 171 in the category of starting a business. Outdated procedures and “red tape” remain the biggest obstacles towards improving doing business. From setting-up, to complying with local rules and regulations, even dissolution of a business is a lengthy and complicated process. Many procedural reforms claim to have reduced the number of days to secure certificates, licenses, and permits. Yet in reality, it still takes at least one to as long as three months to fully register in all government agencies.

These past few days have been nerve-wracking because so much had happened, both locally and in the international scene. I am quite certain that majority of us took to our social media to air out our opinions on the various current events and the hashtag #mytwocents was often used for these. More of that, one of the current developments that I am most concerned about is the tax reform agenda primarily because I am one of the many taxpayers who will be affected by it. Every pay slip, taxes seem to extract a huge cut from our earnings and they take quite a burden especially for those who do not see their taxes working for them.

Is the estate tax now a dying tax? The estate tax is a tax on the dead. It is imposed on the value of properties being passed on to the heirs from a person who has passed away. From being a tax on the dead, is it now on its way to being a dead tax? There are currently two bills at the Senate proposing to abolish the estate tax -- Senate Bill 1053 sponsored by Senator Nancy Binay and Senate Bill 107 by Senators Dick Gordon and Loren Legarda. Both bills point to the failure of the estate tax to raise revenue as is expected of a tax. The estate tax contributes less than 1% to total BIR revenue despite the 1997 reform and despite the perception that the rate is high. It cannot be a reliable source of revenue since the tax base cannot be accurately forecast. The tax would not apply to the vast majority of Filipinos who have no wealth to transfer. On the other hand, the small minority of the rich who have the property are often able to do estate planning and minimize their estate taxes Both bills also point to abolition of the tax as the trend. Sen. Gordon notes that, since 2000, 11 countries and two tax jurisdictions, including Singapore, Hong Kong, and Norway, have repealed their estate or inheritance tax laws and policies. Sen. Binay points out that the death of the estate tax should be welcomed as a paradigm shift to make the Philippines an attractive place for wealth to be invested and built up by Filipinos or foreigners, in the country’s best interest. Sen. Binay notes that the attendant revenue forgone would remain elusive if potential taxpayers do not surface because of the existing estate tax. She is positive that the revenue loss will consequently be recouped through capital gains tax upon the eventual sale or transfer of the estate to buyers or donor’s tax if passed on through donation. The estate tax is often blamed for the delays in the legal transfer of properties from parents to their descendants. We often encounter properties currently still in the name of parents, grandparents and great grandparents who have long left the world of the living. Sen. Angara has been quoted as pointing to the estate tax hurdle, the unfamiliarity of Filipinos with estate taxes and cultural avoidance to discuss death-related affairs as the factors leading families to delay settling the estate, resulting in huge penalties and surcharges while use of assets are not maximized. Is the tax then worth saving? Still many camps are of the position that there is hope in the estate tax. It is still a good policy tool and just has to be reformed. The tax is premised on the estate-partnership theory where it is viewed as the share of the State being a participant and contributor in the accumulation of wealth by providing the infrastructure and security. The State becomes a compulsory heir with priority over the legitimate heirs in the distribution of assets. The tax is also viewed as a tool to redistribution of wealth. That is, with a high tax on upon death, property owners will be encouraged to transfer their properties early on whether through sale or gift or donation. In several other Senate and House bills, there are various reforms towards reducing the rates, adjusting the deductions/exclusions, and simplification. With these reforms, the proponents foresee that the tax will not anymore be seen as a hurdle and can contribute more revenue with increased compliance. It is however critical to consider the other transfer taxes in reforming the estate tax. There is an alternative donor’s tax for in vivo transfers. Equity consideration should likewise be revisited considering that the capital gains tax on subsequent transfers are also being imposed on the same fair market value, not on the gain. In other countries, on the other hand, there is an inheritance tax, in lieu of an estate tax. DoF Secretary Dominguez was quoted saying that, after the reforms, those in the business of estate planning will be out of business soon. I personally think that, between an outright repeal and the status quo, the reforms can be given a chance. Here is a tax where taking chances is not too risky. The revenue is not big enough to pose a risk to public finance in case the projected increase coming from improved compliance does not materialize. We can let the estate tax performance speak for itself after the reform. If the objectives do not materialize, then maybe it’s really time for the tax to die. But with or without the estate tax, I think measures should be instituted to hasten the updating of property registers. The hesitation or failure of Filipinos to update the legal records for the ownership of properties should be directly addressed. It is not just the estate tax. The legal proceedings are also perceived to be complicated and costly entailing professional fees for lawyers and surveyors (as well as the middlemen), the various fees and charges, as well as the local transfer tax. Added to this is the fact that many Filipinos are averse to executing their last will, further contributing to delays in the transfers. We neither discount ignorance of these requirements as a contributory factor. Can there be government intervention in this regard? Can government initiate the required processes? Deaths and property holdings should be easily monitored in the present times with the use of technology. And instead of government threatening the heirs with taxes, fees and penalties, it can emphasize its desire to help and the need to keep property records in order. Sen. Pimentel offers an estate tax amnesty as a complementary measure. The estate tax need not be a dead tax. Well, not yet. Lina P. Figueroa is a principal of the Tax Advisory and Compliance division of Punongbayan & Araullo.

One week from now, we commemorate All Souls Day. Many of us will visit the cemetery to remember departed loved ones. For some, this occasion is a reminder that, after all the toils and struggles in life, our physical bodies will be laid to rest in the same place. Then, what happens? Aside from the spiritual and religious aspects of death, there is another aspect which we might not be able to avoid -- tax. In particular, upon death, our estate could be subject to estate tax. Others call it the death tax. Is this applicable only to rich people?

With the Duterte government’s aggressive pursuit of reforms to bring about a simpler, more equitable and more efficient tax system that can encourage investment, job creation and poverty reduction, the Department of Finance (DoF) recently presented its proposed Tax Policy Reform Program as of Sept. 28. The proposed tax policy packages cover several areas of the tax system such as the personal income, consumption, corporate income, property and capital income taxes.

For the past months, the push for tax reform has been increasing, to rationalize our 19-year-old Tax Code in response to our changing economic environment, including the impact of ASEAN integration. Among the issues surfacing in the news are: updating the tax brackets for individual income tax, reducing corporate income tax rates, and simplifying certain tax administration procedures. Not to be left behind is the possible reform of the withholding tax system, particularly on the expanded withholding tax (EWT). This article focuses on EWT.

Guidelines in securing importers and broker's BIR clearances