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What constitutes “doing business” in the Philippines under Philippine Law?


What constitutes doing business in the Philippines?

The term “doing business” is defined in Section 3(d) of Republic act No. 7042 or the Foreign Investments Act of 1991.  In the said law, “doing business” includes:

x x x 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 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 interests 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.

The Supreme Court had the occasion to interpret the said provision in the case of B.Van Zuiden Bros., Ltd. vs. GTVL Manufacturing Industries, Inc. (GR No. 147905). In the said case, Petitioner which is a foreign corporation entered into various transactions with the respondent.  The respondent made several purchases of lace products from the petitioner with the instruction to deliver these products to Kenzar Ltd, a Hong Kong corporation.  Under the said transaction, the products are considered sold upon delivery to Kenzar.  However, the respondent failed to make good on its obligation to pay various purchases. Hence a complaint for sum of money was filed in Philippine court.

According to the Supreme Court, one of the indications of “doing business” in the Philippines is the actual performance of specific commercial contracts within the territory of the Philippines.

To constitute “doing business” in the Philippines, the foreign corporation must actually transact business in the Philippines. It must perform specific business transactions within the Philippine territory on a continuing business on its own name and on its own account.  If no such transaction takes place then the foreign corporation is not deemed to be doing business in the Philippines.

The Supreme Court said that “The series of transactions between petitioner and respondent cannot be classified as “doing business” in the Philippines under Section 3(d) of RA 7042.  An essential condition to be considered as “doing business” in the Philippines is the actual performance of specific commercial acts within the territory of the Philippines for the plain reason that the Philippines has no jurisdiction over commercial acts performed in foreign territories.  Here, there is no showing that petitioner performed within the Philippine territory  the specific acts of doing business mentioned in Section 3(d) of RA 7042.  Petitioner did not also open an office here in the Philippines, appoint a representative or distributor, or manage, supervise or control a local business. While petitioner and respondent entered into a series of transactions implying a continuity of commercial dealings, the perfection and consummation of these transactions were done outside the Philippines.”

The Supreme Court added that “As earlier stated, the series of transactions between petitioner and respondent transpired and were consummated in Hong Kong.  We also find no single activity which petitioner performed here in the Philippines pursuant to its purpose and object as a business organization.  Moreover, petitioner’s desire to do business within the Philippines is not discernible from the allegations of the complaint or from its attachments.   Therefore, there is no basis for ruling that petitioner is doing business in the Philippines.”


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