Definition of Terms

In the bilateral trade agreements signed and entered into

force, there is a list of definitions within which should be

referred from time to time by the contracting parties for the proper

application and implementation of the agreements.

In the case between Philippines and United Kingdom and

Philippines and Australia, they defined investment as ‘‘every kind

of asset’’. The definition also enumerates a list of assets that can

be classified as an investment. For it to be considered as an asset,

it must first fit the definition of an asset which is further

defined as a resource controlled by an entity by which future

economic benefits are expected to flow to the entity. It cannot be

considered as an asset if in the first place it will not add value

to the entity as a whole.

Both Agreements in their definition of investments include the

following: (i) movable and immovable property and any other property

rights such as mortgages, liens and pledges; (ii) shares, stocks and

debentures of companies or interests in the property of such

companies; (iii) claims to money or to any performance under

contract having financial value; (iv) intellectual property rights

and goodwill; and (v) business concessions conferred by law or under

contract. However, in the Agreement between the Philippines and

Australia it included the purchase and sale of foreign exchange as

an investment. Further, their definition of investment is not

exclusive and does not exclude other specific assets. The absence of

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the required characteristic of an investment is also lacking in the

definitions in both Trade Agreements.

In terms of revenue recognition, the Agreement with Australia

used the term ‘’return’’ which includes revenue generated from

management or technical assistance fee, payments in connection with

intellectual property rights and other lawful income. On the other

hand, the Agreement with United Kingdom used ‘’earning’’ and do not

include gross income from intellectual property rights.

In defining who shall be considered as investors for the

purpose of the Agreements, both agreements includes permanent

residents, does not exclude dual national, includes requirement of

substantial business activity and does not define ownership and

control of legal entities.

Consequently, denial of benefits clause is included in the

Agreement between Philippines and Australia but not with the

Agreement with United Kingdom. Denial of benefit clauses are

generally designed to exclude from treaty protections nationals of

third States which, through mailbox or shell companies, seek to

benefit from provisions that the State parties to the treaty did not

intend to grant them. However, the denial of benefit clause thus not

provide ‘‘substantive business operations’’ criterion and does not

apply to investors from States with no diplomatic relations or under

economic or trade restrictions.

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