Lyoness vouchers not “retail trade” in the Philippines
Despite only money changing hands, there are those that argue that the selling of access to discounts, or even discounts themselves, constitute the retail sale of products or services.
Such is the case with Lyoness, wherein affiliates can invest funds in shopping units and get paid when newly recruited affiliates do the same.
Vouchers are bundled with each unit investment, which Lyoness and their affiliates claim are evidence of retail activity taking place.
This despite the fact that no tangible products are purchased through issuing of Lyoness’ vouchers themselves.
Evidently this has been an ongoing point of contention between the Philippine SEC and Lyoness, with the regulator recently publishing an official opinion on the matter.
In their published opinion, addressed to Lyoness Phillippines INC., the Philippine SEC clarify that they are
of the view the sale of vouchers or GCs is not considered as “retail trade”.
The regulator cites a Supreme Court decision dating back to 1988, in which
the Court stated the following elements should be present in order for a sale to be considered as retail:
(1) The seller should be habitually engaged in selling;
(2) The sale must be direct to the general public
(3) The object of the sale is limited to merchandise, commodities or goods for consumption
Lyoness themselves don’t sell anything, so there goes point one. Point two relies on point one, so it’s out too.
Vouchers are obviously not “merchandise, commodities or good for consumption” in and of themselves (they merely represent a promised discount), meaning Lyoness’ vouchers fail on all three specified criteria.
As held by the high court, consumer goods are goods, which by their very nature are ready for consumption.
It is clear in the Marsman ruling that in order to be classified as retail, the object of the sale must be goods that are ready for consumption.
This does not cover the sale of gift check/certificate/card.
Despite it being established that Lyoness are not engaged in the sale of retail goods and services though, PhilStar Global observe that Lyoness’ legal status in the Philippines is still murky.
While it is now clear the business model of buying and selling these vouchers or GCs is not within the technical definition of “retail trade” and hence, not subject to the minimum capitalization requirements, there may be another hurdle that must be considered.
In the LPI opinion, the SEC pointed out that if the 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, in effect, it disseminates information to the general public through the Internet.
Hence, it may be considered as a mass media entity.
As defined under RA 7394 or the Consumer Act of the Philippines, “mass media” refers to any means or methods used to convey advertising messages to the public such as television, radio, magazines, cinema, billboards, posters, streamers, hand bills, leaflets, mails and the like.
The way I see it, Lyoness don’t advertise a “particular product or service”. Thus their classification as a media entity, as per the requirement above, seems pretty weak.
as a mass media entity, it must be wholly-owned by Filipino citizens.
Lyoness could place ownership of Lyoness Philippines INC. into the hands of local puppet management, but at the end of the day the parent company is still going to be Lyoness, which is not owned by a Philippine national.
The PhilStar Global article leaves the question of whether the Philippine SEC will pursue further action against Lyoness unanswered.
The fact that the SEC are snooping around however is likely due to Lyoness’ shopping unit Ponzi scheme, with the investigation at this stage attempting to debunk likely defenses Lyoness might raise at trial.
One of which will no doubt be “but we sell retail products!”
We’ll keep you up to date on any further developments…