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Estate Planning in the Philippines

Estate Planning in the Philippines

Estate planning is the process by which someone still living arranges for the orderly and most tax efficient way of transferring his property to his heirs and other beneficiaries. propertiesEstate planning isn’t widespread in the Philippines. This is in part because most people don’t leave behind a lot; the Philippines after all is still a developing country. That said, estate planning is common among the well heeled set, if anecdotal stories from the big law firms is anything to go by.

For purposes of this post, I’ll be calling the guy giving property the benefactor. Usually in succession law we call the benefactor the deceased or the testator but strictly as you, the guy passing on his property, is not deceased yet nor are you passing property through a will, then neither term is applicable at this point.

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Taking the Philippine Bar Exams

Taking the Philippine Bar Exams

The bar exam, with an average annual passing rate of around 20% is routinely touted as the most difficult test in the Philippines. It’s a grueling ordeal of 4 Sundays, each Sunday devoted to 2 different subjects.gavel

Everyone prepares for the test in different ways. The conventional method is to enroll in bar review at a reputable law school.

The dean of my law school recommended reading all the review material at least 5 times. He argued that it’s simply impossible for the basics not to sink in after that many readings. This is knowledge of the material perhaps even in spite of yourself, through sheer dogged effort.

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Tales from MCLE – I

Tales from MCLE – I

Every 3 years all lawyers in the Philippines are required to undergo Mandatory Continuing Legal Education (MCLE). This consists of 36 hours of lectures or basically 4 whole day (8am – 6pm) sessions.  Failure to take your MCLE will disqualify you from practicing law in the Philippines.

gavelMCLE is not peculiar to the Philippines, many states in the US, for example, have a similar requirement.

Usually MCLE lectures consist of experienced lawyers giving an over view of their respective fields. Inevitably MCLE is also a time where seasoned lawyers share a story (or 2 or 3), culled from their practice.

These anecdotes range from sad to thoughtful or reflect the sometimes comical absurdity of practicing law in the Philippines.

I will be sharing some of the stories I hear. Note that I do not have any personal knowledge of any of these events as they were just related to me. Nor do I have any way of determining the accuracy of the events as told, the speaker may have embellished or altered or failed to recount some of the details. There may also be inaccuracies in the way I remember the story (MCLE can get pretty monotonous and my mind does wander).

So basically take all of these tales with a grain of salt.

Political – At a hearing a Senator comments on a document submitted. “The signature on this check is obviously fake, where’s the real one?”

Tax – BIR assessed a corporation with under reporting its income. The justification given for arriving at the conclusion of under declaration was that for some months the income of the corporation fell below that of the highest grossing month of that year.

For example, the highest grossing month was 50 million. Most months fell

I wish BIR had less glossy ads and more substantive efforts on making things easier for taxpayers who actually want to pay their taxes.
I wish BIR had less glossy ads and more substantive efforts on making things easier for taxpayers who actually want to pay their taxes.

below this, some were 30 million, 42 million, etc. BIR insisted that the income should be 50 million for each and every month of that year and the difference between 50 million and the reported income of that month constituted the under reporting.

The above reasoning not only transgresses business experience and legal principles but even basic common sense.

Trial – Lawyer told to begin cross examination. As he is about to begin, judge asks his clerk to bring over the landline (this was back in the day when landlines were still literally landlines with an accompanying rotary phone set). Judge then proceeds to phone another judge and converse with him for 45 minutes, all the time expecting the cross examination to continue.

His clerk would tap him on the shoulder when he had to rule on any objection.

Futures contracts – Futures contracts, a common instrument in other jurisdictions, are barred in the Philippines because of a 1993 Supreme Court decision finding such contracts to be speculative and thus a futures contract does not have for its subject an object certain.

Tax – Failing to file and pay your return at the Revenue District Office (RDO) where you are registered can be taken as failing to pay your taxes. So even though you’ve paid your taxes, the BIR can declare you haven’t simply because you filed the return in the wrong office.

Let’s say you are registered in an RDO in Manila, went to Cebu to work there for 2 years, and since you are an honest taxpayer you filed and paid your income tax in Cebu.  The BIR can still say you are deemed as not having paid as you filed in the wrong RDO.

Criminal case – A man was convicted of raping his own daughter, this alleged rape produced a child. The defense team requested a DNA sample from the child so it could be determined whether the accused was indeed the father of the child. The victim refused to give consent that the child provide a DNA sample and the court declined to require the production of said DNA sample.

Man convicted of raping his daughter.

On appeal, the defense team manages to get an unofficial sample of the child’s DNA. I describe it as unofficial as the sample was obtained not under a formal order of any court. The defense though managed to get a verified sample from the child. After comparing it with that of the convicted rapist, it was clear that the convicted man could not have been the father of the child.

So, there is now clear scientific evidence proving that the convicted man was not the father of the child he supposedly sired with his own daughter when he raped her.

With this the defense team appeals to the Supreme Court. The defense acknowledges that the unofficial DNA test is inadmissible but argues that the unofficial test is enough justification to order an official test of the child’s DNA.

The Supreme Court rejects the defense’s attempts to reopen the case.

The man is eventually freed through executive pardon. As he was pardoned though, not acquitted, his records still bear the stain of his conviction for rape.

Your rights online

Your rights online

Happy 25th birthday to the Electronic Frontier Foundation (EFF), established on July 10, 1990.

What the ACLU is for your rights IRL, the EFF is to your rights online. The EFF attempts to ensure that your rights are not violated simply because the activity you are doing is done online instead of offline.

Developments in American jurisprudence and policy pertaining to the internet matter because these developments affect all users of the net, regardless of their nationality.

My Constitutional law professor was Fr. Joaquin Bernas. He is a noted expert on the Philippine constitution. Heck, he was part of the commission which drafted the thing.

One class Fr. Bernas posed this hypothetical: Let’s say the police have a new long range infrared scanner which can sense heat through walls and via this scanner the police can determine if marijuana is being grown inside a structure. They use the scanner on the house of Mr. X and determine that marijuana is being grown there. They bust into the house of Mr. X and indeed find marijuana being grown there. They cart Mr. X off to jail. Mr. X now contests the use of the scanner as an illegal search.

As I was not a very imaginative student this question had me stumped. In determining the growing of marijuana the police never physically entered the residence of Mr. X. They weren’t even anywhere near his residence. Honestly I was inclined to let the police get away with it and declare the search as valid.

The answer, of course, is that it was an illegal search. As Fr. Bernas pointed out, technology may change but these changes are still subject to the Bill of Rights and other rights under law. (Fr. B was far more eloquent and succinct.) A search need not be a physical search but it could be a remote search through digital (or other) means, not just of your personal items but your data, documents, passwords and files.

Technology may enable other means of acquiring information (tapping a phone line, hacking into a computer, placing a gps tracker on a car) but that doesn’t change the nature of these acts, they are still searches, they are still illegal invasions of privacy.

One has the right to be left alone, to be private and even to be anonymous. Those rights do not change and will never change even though the technology available to pry into them may improve.

So, kudos to the EFF.

Digital Rights Management (DRM) schemes are often very restrictive. You own a piece of software or a file and yet a lot of the time the seller imposes severe restrictions on its use.
Digital Rights Management (DRM) schemes are often very restrictive. You own a piece of software or a file and yet a lot of the time the seller imposes restrictions on its use.

Photo credit: Flickr via Photopin and a Creative Commons License

How to Compute VAT

How to Compute VAT

VAT or value added tax (GST in other countries) in the Philippines is 12% of the price of the good or service.

So you’d think a purchase worth PHP100 would have a VAT amount of PHP12.

Nope, you’re wrong. The correct VAT amount on a sale of PHP100 would be PHP10.71. Find out how to compute the proper VAT amount after the fold.

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FAQ: Probationary Employees

FAQ: Probationary Employees

As I provided a sample probationary employment contract in my last post I thought I would discuss probationary status a bit further.

Most businesses in the Philippines start their employees as probationary. It’s rumored even that some extremely large businesses circumvent the law by treating their employees as permanently probationary (yes that’s an oxymoron).

With such rumors common place, some employees can be wary of probationary periods and may (fairly or not) see them as yet another means of the employer extracting maximum work from them for minimal pay.

Hopefully some of the Q and A below can help dispel some of the doubts regarding probationary employment status.

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Sample Probationary Contract

Sample Probationary Contract

Inevitably as your business grows you’ll have to hire employees to help with the additional work. This can be daunting for many entrepreneurs as the Philippines has a lot of requirements regarding labor. In general, doubt is resolved in favor of the employee and many of the laws in the Philippines make it difficult to fire or retrench an employee.

(One may argue that all of these protections for the employee have resulted in a complacent, rigid workforce and I think there would be some merit to that argument.)

For this post let’s just start at the beginning, hiring someone. As the employer you usually want the prospective employee to sign a contract. There’s nothing special about an employment contract. You don’t need to be a lawyer to draft one. Indeed, it would be a good exercise for any employer to draft his own contract first and then have a lawyer go over it.

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