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Amicus Curiae

Restrictions on the sale and marketing of gift certificates and vouchers

March 14, 2016

The Retail Trade Liberalization Act of 2000 restricts foreign equity participation in retail trade businesses. Its purpose is to protect local business owners while promoting productive foreign investment. There are several regulations under this law on foreign ownership of retail trade business that must be complied with, thereby limiting investor’s prerogative in structuring and imposing higher standards on foreign participation.

 

 

For example, one limitation to protect Filipino business is that foreigners may not participate in enterprises with paid-up capital of less than two million five hundred thousand dollars ($2,500,000.00).

Innovations in marketing and trade have introduced debatable gray areas.

The Office of the General Counsel of the Securities and Exchange Commission (“SEC-OGC”) was asked an interesting query: is a corporation duly organized and existing under Philippine Laws, whose primary purpose is to provide local and international linkages among consumers through gift certificates and vouchers, subject to the regulations of the Retail Trade Liberalization Act?

This query was prompted by the emergence of corporations engaged in the sale of vouchers or gift certificates to individuals. These corporations entice merchants to sell them gift certificates at discounted prices, which shall later be sold to individuals at a premium. This type of business is increasingly popular as mode of marketing and advertising products. On an internet platform with a wide consumer base, the voucher serves not only as an instrument to purchase but also as a viable advertising medium.

The SEC-OGC succinctly discussed how retail trade is an “act, occupation or calling of habitually selling direct to the general public merchandise, commodities or goods for consumption.” The SEC-OGC cites the Supreme Court decision in Marsman & Company, Inc. vs First Coconut Central Company, Inc., which clarified that consumer goods are those used or bought primarily for personal, family, or household purposes. However, these items sold must be the final product, sold to an end-user.

Interestingly, the SEC-OGC noted that the Department of Trade and Industry does not treat a gift check/certificate/card as an end product. It is an instrument issued by a supplier to an individual, partnership or a juridical entity for monetary consideration evidencing a promise by the issuer that consumer goods or services will be exchanged in favor of the bearer upon presentation of said gift certificate/check/card to the value, credit, specific good, service or event shown in the instrument. In other words, since they are considered instruments of acquiring goods for consumption and are not goods for end-use in themselves, gift certificates or vouchers do not fall within the scope of the Retail Trade Liberalization act of 2000.

But does this mean that a corporation that engages in selling vouchers or gift certificates online may be wholly owned by foreigners without capital restrictions and requirements?

It appears not.

A previous opinion of the SEC states that if a corporation is engaged in the operation of a voucher platform on the internet with the purpose of increasing the sales of a particular product or service, it effectively disseminates information to the general public through the internet. Hence, it may be considered as a mass media entity, which, must be wholly owned by Filipinos pursuant to the requirement in Article XVI of the Constitution and List (A)(1) of Executive Order No. 858 (“E.O. No. 858”).

It seems that though entities in the business of selling gift certificates or vouchers over the internet are not subject to the regulations and restrictions imposed by the Retail Trade Act, they are subject to the far more stringent restriction of the Constitution and E.O. No. 858.

Truly, selling on a massive internet platform with promos and deals for vouchers allow manufacturers and other end-use product sellers to cultivate international and local networks. The reach of such medium is exponential and almost unquantifiable, consistent with the nature of mass media.

However, unlike the Retail Trade Business or traditional mass media, it is hard to enforce the restrictions that apply to internet businesses.

Though they may do business in the Philippines, by selling vouchers to Filipinos and liaising between the manufacturer and the end-user, they operate on a platform that our government has yet to fully regulate. What is the consequence for those entities that are wholly owned by foreigners? What can be done to restrict the continuance of their business? There is no tangible way of enforcement to physically stop them or their customers from going on the internet. The internet as a medium needs to be further studied because its effects, just like its reach, is exponential.