Business Review - Vol. XXIX No. 2 - February - March 2013 Issue (Preview)

Business Review

www.eccp.com

Volume XXIX No. 2

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February - March 2013

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INtegrity initiative

editorial

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Sustaining Philippine Economic Growth

Chambers@work

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FEATURE

Meeting with DOT USec. Daniel Corpuz / PRA GM Veredigno Atienza • Meeting with DOE Sec. Petilla - Feb 11 • We need your feedback on ICC, FDA, TCC • Meeting with CAAP Dep. Exec. Dir. Andrews - Feb 5 • Meeting with the League of Provinces • Human Capital Club (HCC) - in Partnership with BPAP on the development of High Potentials • Meeting with DTI Sec. Domingo • ASEAN-EU Economic Summit in Hanoi • Meeting with DOTC Sec. Abaya

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AGENDA FOR CHANGE

“Behold the turtle . . .”

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EVENTS

ASEAN NEWS

Contents

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MEMBERS’ CORNER

New Members • Top American Accolade • For Bradford BUSINESS usiness • Your transfer pricing risk

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EU NEWS

@Home at Acacia Hotel • Arangkada Philippines Forum - 26 Feb ECCP CEBU Hosts first Networking Night • Bosch, ECCP Conduct Training On Fuel Efficiency, Fleet Management •

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ASEAN News • Myanmar and Malaysia sign science and technology cooperation agreement • Brunei takes on the challenges of Chairing ASEAN in 2013 • Yudhoyono takes over Democrat Party leadership amid corruption scandals • Ailing banking system seeks foreign investment

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Integrity Forum • with SEC Chairperson Herbosa • Integrity Consortium launched in Cebu

Impressum

EU - Thailand / Launch of FTA negotiations • EU - Vietnam / Speed up FTA negotiations • The European Commission proposes opening plurilateral trade negotiations on services • EU and US launch Transatlantic Trade and Investment Partnership negotiation

AGENDA FOR CHANGE “Behold the Turtle”

BUSINESS REVIEW February -March 2013

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Chamber@Work

Meeting with DOTC Sec. Abaya ECCP met with Department of Transportation and Communication (DOTC) Sec. Joseph Emilio Abaya and his team to discuss a variety of issues: •

Planning regarding the future of NAIA and Clark - DOTC is still debating 3 options, two of which will see a co-existence of Clark and NAIA as possible areas of the expansion project for the new airport.

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A number of secondary airports will become international gateways which will address congestions in Manila; moving general aviation to Sangley is seen as a possible option.

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Air Safety Issues - negotiations for the CNS/ATM project has started again with Mitsubishi and Thales; the DVOR will be bided out shortly;

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Decongestion of Manila / usage of Batangas and Subic ports ECCP discussed a variety of options to move container traffic in a phased way from Manila to Batangas and Subic; in this context ECCP advised against expanding Manila Harbor (berth 7) and new developments regarding bulk storage in South Harbor; Ed Chua of Pilipinas Shell provided information on developments to ‘shrink’ the importance of Pandacan by creating facilities north and south of Manila

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High cost of domestic shipping – ECCP agreed to provide the DOTC with a study how domestic shipping can become more competitive

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RoRo Expansion – ECCP briefed the DOTC on the importance of local and foreign (ASEAN) RoRo expansion

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Rapid Bus Systems in Manila and Cebu - DOTC informed that they are currently running a test in Commonwealth Ave; the plan is to present the results to the President, trusting that the rapid bus systems can be introduced both in Manila and Cebu

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Rail projects - LRT 1 and 2, MRT-7) are in their final stages of planning and is expected to be bided out soon

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BUSINESS REVIEW February -March 2013

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Feature

AGENDA FOR CHANGE “Behold the turtle . . .”

By Art Villasanta

First things first. A hearty “Hurrah!” must go to President Benigno Simeon Aquino for staunchly championing integrity and clean government. These virtues have since become the foundations of the current economic renaissance that saw growth climb to 6.6% in 2012, and have set in train events that might yet alleviate the decades’ long illnesses afflicting the “Sick Man of Asia.”

The “Tone from the Top” has also pervaded the bureaucracy to such an extent a growing number of businessmen perceive the Philippines as a more honest and better place for business. Remarkable progress was made in just over two years in the fight against corruption, both in the public and private sectors, and mainly because of the “Tone from the Top” in government departments and in corporations.

The President’s unwavering support for the aims of the Integrity Initiative, the key transformational initiative championed by the European Chamber of Commerce of the Philippines (ECCP) and the Makati Business Club (MBC), is a critical reason why much of the progress in fighting corruption over the past year has occurred in government.

The 2012 Survey of Enterprises on Corruption by the Social Weather Stations revealed that business executives who saw “a lot” of corruption in the public sector fell to 42% in 2012 from 64% in 2009 after having been at 60% or higher since 2000.

“At the bottom line of our strategy is ensuring a level playing field, one that is stable, rules-based and whose outcomes are predictable,” the President said during the 2nd Integrity Summit co-organized by ECCP and MBC in September 2012.

The best laid plans, he noted, can be derailed when rules change and decisions are based on whims to benefit a few.

“This is what we are trying to change since we took over office,” he emphasized.

“This is the rationale behind our agenda of integrity-based governance.”

The “Tone from the Top” has also infected the legislature. Without doubt, the recently ended 15th Congress was far more productive than the 14th Congress convened from 2007 to 2010. But more important than the sheer quantity of legislation it passed is the quality of the laws enacted by the 15th Congress.

Speaker Feliciano Belmonte Jr. said the 15th Congress was instrumental in restoring investor confidence, achieving growth and reducing poverty over the past three years. He noted that the 15th Congress enacted a total of 219 laws. Of the 36 priority bills listed by the Legislative-Executive Development Advisory Council (LEDAC), 11 have been enacted.

BUSINESS REVIEW February -March 2013

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ECCP Cebu

(From L to R) Marguerite Lhuillier, Butch Carunggay, Christine Kintanar, Michel Lhuillier chatting up Martial H’ordeuvres, wine, and a lot of chatter during the very first Networking Night

ECCP CEBU HOSTS FIRST NETWORKING NIGHT Despite heavy rains, the first ECCP Cebu networking night dubbed “The European Garden Party” held at La Maison Rose Retaurant was flocked by over twenty guests coming from the French community in Cebu and ECCP member companies.

The social gathering was a great opportunity for the business community to expand contacts and network with the European social and business community in Cebu. Martial Beck, ECCP Vice President and General Manager graced the event.

ECCP’s Roselu Paloma and Rosemel Calderon with Gus Palao

“The European Garden Party” was co-hosted by La Maison Rose Restaurant along Gorordo Avenue in Lahug, Cebu City on February 19.

The ladies of Unionbank Pamela Pepito, and Denise Rivera

ECCP’s Hannah Cusi and Rosemel Calderon with Badian Islands Hartwig Schulz and Maria Catral

The French ladies, Sophie Hussenet and Delphine de Lorme, are all smiles!

BUSINESS REVIEW February -March 2013

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Member’s Corner

Your transfer pricing risk

By Lina P. Figueroa The Philippines is now catching up with international best practices in tax administration. The Bureau of Internal Revenue (BIR) issued Revenue Regulations No. (RR) 02-2013 to promulgate its policies on transfer pricing among related parties.

Transfer pricing is simply the pricing of transactions with related parties or associated enterprises.

Transactions could be anything that goes into the determination of taxable income and deductible expenses – purchase or sale of goods and services, financing arrangements, use of properties, transfer or use of intangibles and cost-sharing arrangements.

How will your company be affected?

The transfer pricing regulations will definitely impact on your company if you have transactions with related parties – i.e., parent, affiliates or subsidiaries, whether incorporated or doing business in the Philippines or in other countries.

The BIR will begin to look into the propriety of your transfer pricing and may assess deficiency income tax, including interest and penalties, if it alleges “underpriced” sale or “overpriced” purchases of goods and services to/from your related parties.

What is the “correct” transfer price?

The transfer pricing standard is the arm’s length standard or principle. This requires that intercompany transactions should have the same results as if transacted with an unrelated party, under comparable conditions and circumstances.

Market forces, not the relationship, should reflect the true economic value of the contributions of each party. Hence, a related party should be compensated commensurate to the functions it performs, the risks it shoulders and the assets it employs and vis-à-vis the benefits received by the other entity from the product or service.

The regulations suggest a three-step procedure

to derive this arm’s length standard: (a) find comparable companies with independent or uncontrolled transactions against which your company can be benchmarked; (b) select the most appropriate transfer pricing or benchmarking method; and (c) determine the specific/median/ average price or margin (profit level indicator) derived from the financial information of the comparable companies which can be the standard against which your intercompany transfer price can be measured. The regulations also prescribe the transfer pricing methods that can be applied which may use either the specific price or fee, gross profit margin, resale margin, mark up on cost of sales, profit split or net margin ratios.

What can the company do to avoid or address transfer pricing adjustments?

At the very least, companies with intercompany transactions should start evaluating their transfer pricing risks. What are the inter-company transactions? How much are involved? How much is at risk in case of transfer pricing adjustment?

What is the current transfer pricing policy? What is the company’s net income position over recent years – positive or negative?

A company should also start looking into the preparation of its transfer pricing documentation.

Best practices dictate that a company seek professional help in undertaking this project since it may require the expertise and experience of mixed group of advisors – accountants, tax consultant, economist, and industry experts, among others.

It also involves the gathering and analysis of internal and external information. This includes information on the relationship of the related parties, description of the business as well as the industry and market conditions, the nature of the transactions, analysis of the functions, assets and risks, and determination of the arm’s length price or standard, as described above, among others.

Punongbayayan & Araullo (P&A), one of the country’s leading professional service firm in the area of audit, tax, advisory and outsourced finance and accounting services, offers comprehensive transfer pricing solutions that are suited to the needs of the client. The Firm handles transfer pricing audit defense on behalf of the client, and likewise conducts transfer pricing risk assessment, planning, and benchmark analysis.

P&A recently celebrated its 25th anniversary with a thanksgiving dinner for nearly 600 valued clients and business colleagues at The Marriott Hotel, Resorts World Manila. Founded by Ben Punongbayan and Joe Araullo, P&A first opened its doors on February 15, 1988. At the time, Punongbayan had already made quite a name for himself in the accounting practice, having worked here and overseas, while Araullo was a well-known and respected leader in the banking industry. Together they dreamed of establishing an accounting firm that would provide professional services of the highest standards of quality, integrity and excellence.

In 2011, P&A elected its first female Managing Partner and Chief Executive Officer Marivic Españo.

A year later, she was elevated to Chair and CEO, while Jun Cuaresma, who heads the Firm’s Audit & Assurance Division, was named Managing Partner and Chief Operating Officer.

“P&A has gone through many changes in its 25 years,” says Españo. “For one, we’ve had a changing of the guards, so to speak, with the younger partners stepping up to leadership roles that were once occupied by the pioneers. This is why our theme for our 25th anniversary is ‘In the prime of our youth’. We may be young compared to the other big accounting firms in the country, but we believe this is what sets us apart: The energy, vibrancy, and enthusiasm that characterize our service and our people.”

The author is a principal with P&A’s Tax Advisory & Compliance Division.

The P&A partners with P&A Chair & CEO Marivic Españo (center) flanked by (to her right) Grant Thornton International Global Leader for Asia Pacific, Middle East and the UK Nigel Ruddock, and (to her left) P&A Founder Ben Punongbayan.

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Following the toast, Vice President Jejomar Binay shakes the hand of P&A Chairman & CEO Marivic Españo as P&A Founder Ben Punongbayan and and P&A Co-founder Joe Araullo look on.

The Business Digest of the European Chamber of Commerce of the Philippines

Business Review Published by European Chamber of Commerce of the Philippines (ECCP)

ECCP Board of Directors Michael Raeuber - President Erik Moeller Nielsen - Vice President Cyril Rocke - Vice President Head office: Consuelo Garcia - Treasurer 19/F Philippine AXA Life Centre Cesar Cruz - Secretary Corner Sen. Gil Puyat Ave. and Tindalo St., Makati City, Philippines Ed Chua - Director Tel: (02) 845 1324, 759 6680 Richard Eldridge - Director Fax: (02) 845 1395, 759 6690 Bodo Goerlich - Director E-mail: info@eccp.com Guenter Matschuck - Director John Miller - Director Visayas office: Bernard Poplimont - Director 3/F C. L. Center 14 Juana Osmeña St., Philippe Reveilhac - Director Cebu City, Philippines Jose Luis Romero Salas - Director Tel: (032) 253 3389, 254 3765, 254 3767 Guenter Taus - Director Fax: (032) 253 3387 Fabia Tetteroo-Bueno - Director E-mail: visayas@eccp.com Wick Veloso - Director Mindanao office: 2F DCCCII Bldg., JP Laurel Avenue, Submissions Davao City, Philippines Articles and other materials of interest to the Tel: (6382) 271-0635 general membership are actively solicited Fax: (6382) 226-4433; 221-4148 and may be sent to the Chamber All E-mail: mindanao@eccp.com materials submitted for publication become ECCP is on the World Wide Web at: the Chamber’s property and are subject to editorial review and revisions. http://www.eccp.com

Ipressum

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reasons why you should join the ECCP

www.eccp.com Honorary Auditors KPMG Manabat Sanagustin & Co. Reproduction No part of the Business Review may be reproduced or transmitted in any form or by any means, electronic or mechanical without prior written permission.

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Subscription service Subscriptions from non-members are also accepted: in the Philippines: Pesos 1,500 (6 issues); Individual copies may be purchased locally at Pesos 220 (members) and Pesos 250 (non-members); and for companies outside the Philippines at US$25.00.

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