|2011 Transaction||Acquisition of Energuate by Actis from Fenosa in 2011 through a specific form of LBO referred to as a "reverse triangular merger"|
|Acquisition of Energuate||IC Power’s acquisition of Energuate from Actis, which closed on 28 January 2016|
|AIG||AIG Asia Pacific Insurance Ltd.|
|Annulment Resolutions||Resolutions issued on 13 November 2014 by the SAT nullifying the SAT Hearings Notifications|
|Arbitration Costs||The costs of the arbitration referred in Article 40(2)(a)-(c) and (f) of the UNCITRAL Rules|
|Audit Reports||Reports issued on 12 December 2013 and on 17 February 2014 by the Auditing Teams|
|Auditing Teams||Two teams of auditors appointed by the Head of Taxation Division of Special Taxpayers (Jefe de División de Fiscalización, Gerencia de Contribuyentes Especiales Grandes) through several official notices issued in October and November 2012 to verify whether the Distributors had fulfilled their tax obligations|
|Binding Tax Opinions||Binding tax opinions issued by the SAT on 9 February 2015|
|CICIG||International Commission Against Impunity in Guatemala|
|Citi||Citigroup Global Markets, Inc.|
|Claim Agreement / Letter Agreement||Agreement entered into by Nautilus Inkia Holdings LLC, DEOCSA, DEORSA, IC Power Distribution Holdings, Pte. Ltd. and IC Power on 28 December 2017, whereby IC Power would "continue to retain the right to pursue the Investment Treaty Claims against Guatemala and to retain any proceeds thereof"|
|Claimant / IC Power||IC Power Asia Development Ltd.|
|Claimant’s Application on Withheld Documents||Claimant’s request to the Tribunal to instruct the Respondent to produce documents withheld from document production, submitted on 10 December 2019|
|Claimant’s Application to Share Documents||Claimant’s application pursuant to Order No. 2 to share the withheld documents with specific persons for the purpose of seeking instruction or testimony, submitted on 27 December 2019|
|Consultation Requests||Request submitted by the Distributors to the SAT on 17 October 2016 to obtain a binding opinion pursuant to Article 102 of the Tax Code regarding the entitlement to deduct interest arising from the refinanced debt|
|Costs of Arbitration||The Legal Costs and the Arbitration Costs, collectively|
|Criminal Complaint||Criminal complaint filed on 13 July 2016 by the SAT against the Distributors for alleged tax fraud|
|Criminal Court||Fifth Criminal, Narcotics, and Environmental Crimes Trial Court of the Department of Guatemala. Court which admitted the Criminal Complaint on 22 July 2016|
|Criminal Proceeding||Criminal proceeding against the Distributors currently underway before the criminal courts in Guatemala as a result of the Criminal Complaint filed against them by the SAT|
|DD Team||Due diligence team set up by IC Power and composed of 12 internal members, assisted by a team of 4 external executives, including the former CEO of Chilectra and Ampla, and Mr. Horacio Albín, former CFO of Energuate|
|DEOCSA||Distribuidora de Electricidad de Occidente, S.A.|
|DEORSA||Distribuidora de Electricidad de Oriente, S.A.|
|Distributors||DEOCSA and DEORSA, together|
|Dutch SPVS||Five companies incorporated in the Netherlands and indirectly controlled by Actis. This term refers, collectively, to the following companies: DEOCSA, B.V., DEORSA, B.V., RECSA, B.V., GUATEMEL, B.V. and GENERACION LIMPIA, B.V|
|Energuate||Group of companies formed by the Distributors, Guatemel and Recsa known collectively as Energuate|
|EY||Ernst and Young|
|FCPA||Foreign Corrupt Practices Act|
|Fenosa||Unión Fenosa Internacional, S.A.|
|FET||Fair and equitable treatment|
|Final version of DD Report||Final version of García & Bodán’s due diligence report dated 22 October 2015|
|First version of DD Report||First version of García & Bodán’s due diligence report dated 26 June 2015|
|Globeleq||Globeleq Americas Limited|
|Government / Respondent||The Republic of Guatemala|
|Guatemalan SPVs||Together, ASCOED and ASROED|
|Guatemala-Netherlands BIT||Agreement between the Republic of Guatemala and the Kingdom of the Netherlands on the Promotion and Reciprocal Protection of Investments|
|Guatemel||Comercializadora Guatemalteca Mayorista de Electricidad, S.A.|
|IC||Israel Corporation IC Ltd.|
|Inkia||Inkia Energy Limited|
|ISQ||I Squared Capital|
|Kenon||Kenon Holdings Ltd.|
|LBO||Reverse merger leveraged buyout|
|Legal Costs||The legal and other costs referred to in Article 40(2)(d)-(e) of the UNCITRAL Rules|
|Modified Consultation Requests||Modification submission submitted by the Distributors on 21 November 2016 with regard to their Consultation Requests|
|Non-Binding Tax Opinions||Opinions issued by the SAT on 6 December 2016 in response to the Distributors’ Modified Consultation Requests|
|Payments under Protest||Payments made under protest by the Distributors to the SAT for the alleged tax deficiencies for tax years 2011 to 2015 and which, according to the Claimant, amounted to a total of US$ 75 million|
|Recsa||Redes Eléctricas de Centro America, S.A.|
|Rectification Payments||Series of rectification payments submitted by the Distributors on 19 February 2015 in relation to their tax declarations for the years 2011 to 2013|
|Respondent’s Application to Strike||Respondent’s request to the Tribunal to exclude from the record specific sections of the Claimant’s Rejoinder on Jurisdiction, the second witness statement of Mr. Urbina, the third report of Deloitte, and an exhibit, submitted on 3 April 2020|
|Sale||Sale by IC Power Distribution Holdings Pte. Ltd. and Inkia of IC Power’s assets in Latin America to Nautilus Inkia Holdings LLC, Nautilus Distribution Holdings LLC, and Nautilus Isthmus Holdings LLC (subsidiaries of ISQ). The sale was effected by a Stock. Purchase Agreement dated 24 November 2017 and closed on 31 December 2017|
|SAT||The Guatemalan Superintendence of Tax Administration (Superintendencia de Administración Tributaria)|
|SAT Hearings Notifications||Notifications issued on 27 March 2014 by the Taxation Division of SAT (División de Fiscalización, Gerencia de Contribuyentes Especiales Grandes) to the Distributors notifying that, as a result of the Tax Audit, the SAT had formulated certain adjustments that could be challenged within thirty working days from such notification|
|SAT Internal Reports||SAT internal reports to the SAT’s Chief of the Audit Division for Special Large Taxpayers dated 21 September 2015 which recommended an audit of the Distributors’ Rectification Payments in relation to the fiscal years 2011 to 2013|
|SAT Law||Law of the Superintendence of Tax Administration|
|SAT Rectification Payments Minutes||SAT’s Minutes of meetings held on 27 February 2015 by a representative from the Distributors with SAT officials of the Taxation and Collection Departments to discuss the Rectification Payments. Such minutes reflect certain statements made by the Distributors’ representative to the effect that the Rectification Payments were made taking into account the Binding Tax Opinions|
|SPAs||Two share purchase agreements signed on 19 May 2011 in New York: pursuant to the first SPA, Fenosa sold its shares in the Target to the Dutch SPVs. Following the conclusion of the first SPA, DEOCSA, B.V. and DEORSA, B.V. sold their shares in the Distributors to the Guatemalan SPVs under the second SPA|
|Supplemental Agreement||Supplemental agreement entered into by IC Power and ISQ on 19 December 2019 whereby they clarified their original intention in entering the Claim Agreement|
|Syndicated Loans||Series of syndicated loans managed by Banco Agromercantil and signed by the Guatemalan SPVs on 19 May 2011, pursuant to which they received a joint sum of US$ 220 million|
|Target||DEORSA, DEOCSA, Generación Limpia Guatemala, S.A., Guatemel and Recsa|
|Tax Audit||Inclusion of the Distributors within the audit schedule of SAT in 2012 to determine whether they had properly performed their tax obligations|
|Tax Code||Decree Law 6-91 of the Guatemalan Congress, Tax Code|
|Tax Deductions||Two tax deductions which, according to the Claimant, were generated during the 2011 Transaction, namely: (i) the amortization of the goodwill obtained by the Distributors as a result of the Transaction; and (ii) a deduction for interest expenses on the loans used to acquire the Distributors|
|Tax Opinion Requests||Requests submitted on 5 February 2015 by the Distributors to the Consulting Department of the SAT seeking binding tax opinions regarding the deductibility of interest payments and goodwill amortization arising from the 2011 Transaction|
|Treaty||Agreement Between the Government of the State of Israel and the Government of the Republic of Guatemala for the Reciprocal Promotion and Protection of Investments of 7 November 2006|
|UNCITRAL Rules||UNCITRAL Arbitration Rules, as revised in 2013|
|VCLT||Vienna Convention on the Law of Treaties|
SETTLEMENT OF INVESTMENT DISPUTES BETWEEN A CONTRACTING PARTY AND AN INVESTOR
1. Any investment dispute between a Contracting Party and an investor of the other Contracting Party shall be settled by negotiations.
2. If a dispute under paragraph 1 of this Article cannot be settled within six (6) months of a written notification of this dispute, it shall be on the request of the investor settled as follows:
(a) by a competent court of the Host Contracting Party; or
(b) by conciliation; or
(c) by arbitration by the International Center for the Settlement of Investment Disputes (ICSID), established by the Convention on the Settlement of Investment Disputes between States and Nationals of Other States, opened for signature at Washington, D.C. on [M]arch 18, 1965, provided that both Contracting Parties are Parties to the Convention; or
(d) by arbitration under the Additional Facility Rules of ICSID, provided that only one of the Contracting Parties is a Party to the ICSID Convention; or
(e) by an ad hoc arbitration tribunal, which is to be established under the Arbitration Rules of the United Nations Commission on International Trade Law (UNCITRAL). Unless otherwise agreed, all submissions shall be made and all hearings shall be completed within six (6) months of the date of selection of the Chairman, and the arbitral panel shall render its written and reasoned decisions within two (2) months of the date of the final submissions or the date of the closing of the hearings, whichever is later.
3. Each Contracting Party hereby gives its unconditional consent to the submission of a dispute to international arbitration in accordance with the provisions of this Article. This consent and the submission by a disputing investor of a claim to arbitration shall satisfy the requirements of:
(a) Chapter II of the ICSID Convention or the Additional Facility Rules of ICSID for written consent of the parties;
(b) Article II of the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958 ("The New York Convention"), for an agreement in writing.
4. The choice of one dispute settlement mechanism will exclude any other. Notwithstanding the above, an investor who has submitted the dispute to national jurisdiction may have recourse to the arbitral tribunals mentioned in paragraph 2 of this Article so long as a judgment has not been delivered on the subject matter of the dispute by a national court.
5. The award shall be final and binding. Each Contracting Party shall carry out without delay the provisions of any such award and provide in its territory for the enforcement of such award.
ARTICLE 31. GENERAL RULE OF INTERPRETATION
1. A treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose.
2. The context for the purpose of the interpretation of a treaty shall comprise, in addition to the text, including its preamble and annexes:
(a) Any agreement relating to the treaty which was made between all the parties in connexion with the conclusion of the treaty;
(b) Any instrument which was made by one or more parties in connexion with the conclusion of the treaty and accepted by the other parties as an instrument related to the treaty.
3. There shall be taken into account, together with the context:
(a) Any subsequent agreement between the parties regarding the interpretation of the treaty or the application of its provisions;
(b) Any subsequent practice in the application of the treaty which establishes the agreement of the parties regarding its interpretation;
(c) Any relevant rules of international law applicable in the relations between the parties.
4. A special meaning shall be given to a term if it is established that the parties so intended.
ARTICLE 32. SUPPLEMENTARY MEANS OF INTERPRETATION
Recourse may be had to supplementary means of interpretation, including the preparatory work of the treaty and the circumstances of its conclusion, in order to confirm the meaning resulting from the application of article 31, or to determine the meaning when the interpretation according to article 31:
(a) Leaves the meaning ambiguous or obscure; or
(b) Leads to a result which is manifestly absurd or unreasonable.
Pursuant to the Parties' Procedural Agreement of 26 April 2019, the arbitration rules applicable to these proceedings are the UNCITRAL Arbitration Rules, as revised in 2013 (the "UNCITRAL Rules").
5.1. Submissions. Correspondence may be sent in either of the two procedural languages without the need for a translation. The main documents constituting written submissions (pleadings, witness statements, and expert reports ("Main Documents")) shall be submitted in one procedural language on the Filing Date (as defined below), with a translation into the other language on the Supplemental Filing Date (as defined below). Documentary evidence and legal authorities ("Supporting Documents") may be submitted in English or Spanish. Any Supporting Documents presented in a language other than English or Spanish shall be translated into English or Spanish as to the relevant part thereof. The Tribunal may require a complete translation.
5.2. Governing Language and Translations. The governing language of documents shall be the original language of the document. Translations need not be certified unless there is a dispute as to the content of a translation. Any material disagreement in relation to translations will be decided by the Tribunal following comments by the Parties.
5.3. Orders, Decisions, Award. The Tribunal shall render any order, decision, or award in one procedural language, with a translation into the other procedural language provided within a reasonable time period.2 (emphasis omitted)
1. The Claimant’s request that the Respondent produce the Withheld Documents is granted, subject to the directions below.
2. The Parties shall treat as confidential the Withheld Documents, in accordance with paragraph 9.4 of the Procedural Agreement dated 26 April 2019, as amended by the Confidentiality Supplement to Procedural Agreement dated 4 December 2019.
3. The Withheld Documents shall further be designated as "attorney’s eyes only", meaning that:
(i) the Withheld Documents are to be produced to Claimant's counsel of record for their review only, by Friday, 20 December 2019;
(ii) Claimant’s counsel of record ("White & Case") may only provide the Withheld Documents to its attorneys, paralegals and other staff whose involvement in the conduct of these proceedings is reasonably considered to be necessary;
(iii) For the avoidance of doubt, Claimant’s counsel of record may not share the Withheld Documents with anyone not directly employed by White & Case, which thus prohibits disclosure to representatives of the Claimant, or any expert or witness in these proceedings, subject to any future directions by the Tribunal;
(iv) Each copy of the Withheld Documents shall be marked clearly on each page: "CONFIDENTIAL - RESTRICTED ACCESS - FOR USE IN PCA CASE 2019-43 ONLY";
(v) Claimant’s counsel of record shall take reasonable measures to ensure compliance with the restrictions set out in the present Order and Claimant’s counsel of record can be held liable for any violation of those restrictions;
(vi) Should Claimant wish to introduce the Withheld Documents into the record, or share them with specific persons for the purpose of seeking instructions or witness/expert testimony, it may make an application to the Tribunal as necessary;
(vii) Either Party may apply for an amendment to, or a derogation from, this Order upon a showing of good cause; and
(viii) Any dispute arising from this Order during the pendency of the present proceedings shall be resolved by this Tribunal. (emphasis omitted)
1. The Claimant shall provide, by Thursday, 9 January 2020 (i) its explanation of the substantive basis for its Application; (ii) its identification of the persons with whom the Withheld Documents would be shared; and (iii) a draft confidentiality agreement to be signed by those persons.
2. The Respondent may provide any further comments on the Claimant’s Application by Tuesday, 14 January 2020.
3. The Tribunal will decide upon the Claimant’s Application promptly thereafter.
4. Any application to admit the Withheld Documents into the record should be made by Tuesday, 21 January 2020. The Respondent may comment on any such application by Friday, 24 January 2020. The Tribunal will rule on any such application shortly thereafter.
5. Subject to the Tribunal’s decision on the Claimant’s Application and any application to admit the Withheld Documents, any comments by the Claimant on the Withheld Documents, and any witness or expert evidence with respect thereto, shall be filed by Thursday, 30 January 2020, on the understanding that such submissions and/or evidence shall be limited to comments on the Withheld Documents.
6. The Respondent may respond to any submissions and/or evidence in relation to the Withheld Documents together with its Rejoinder submission, due on 21 February 2020. (emphasis omitted)
1. The Claimant’s application to share the Withheld Documents with Mr. Saúl Augusto Donado Rodríguez, Mr. Juan Rodolfo Pérez Trabanino, Mr. Walter Martínez, and Mr. Robert Rosen is granted.
2. Before receiving the Withheld Documents, the individuals identified above shall each give the following confidentiality undertaking:
I, ________, confirm that I have reviewed this Confidentiality Undertaking and expressly undertake to be bound by the provisions hereof, and that I can be held liable for any violation of this undertaking.
I agree to treat as confidential the Withheld Documents produced to me on the date hereof and to not disclose such documents, unless I am duly required by any court or governmental authority of competent jurisdiction to do so. In such case, I shall immediately give notice thereof to Counsel for IC Power Asia Development Ltd. in the referenced proceedings, and shall reasonably cooperate with any lawful effort to protect such Annex 1 Documents from further disclosure.
The Withheld Documents that I will receive shall be used for the sole purpose of this Arbitration and will be destroyed at the termination of the referenced proceedings.
The confidentiality obligations undertaken hereof shall remain in full force and effect notwithstanding the termination of the referenced proceedings.
3. The Claimant shall provide the Respondent with copies of the confidentiality undertaking signed by each of the aforementioned persons, as well as an indication of which of the Withheld documents were shared with each individual. (emphasis omitted)
1. The Claimant’s application to introduce the Withheld Documents and to provide comments and expert evidence thereon is granted.
2. The deadline for the introduction of the Withheld Documents and any accompanying comments or expert statements remains Thursday, 30 January 2020.
3. As set out in Order No. 3, the Claimant’s submissions and/or evidence shall be limited to comments on the Withheld Documents.
4. The Withheld Documents, as well as the Parties’ continents and any witness or expert evidence in respect thereof, shall remain designated as "attorney’s eyes only" and shall not be shared by Claimant’s Counsel with anyone except for:
(a) persons directly employed by White & Case;
(b) Mr. Saúl Augusto Donado Rodríguez, Mr. Juan Rodolfo Pérez Trabanino, Mr. Walter Martínez, and Mr. Robert Rosen;
(c) Members of the Tribunal and assistants employed directly by them;
(d) Officials of the Permanent Court of Arbitration;
5. The Tribunal and PCA will ensure that the Withheld Documents will be used for the sole purpose of this arbitration and will be destroyed at the termination of the proceedings.
6. To facilitate the maintenance of the confidentiality regime applicable to the Withheld Documents, the Respondent’s response to the Claimant’s submissions and evidence on the Withheld Documents, to be submitted in conjunction with its Rejoinder submissions on 21 February 2020, shall be set out in a separate document from the Rejoinder itself and marked as "attorney’s eyes only" (emphasis omitted).
1. The hearing scheduled to take place on 20-24 April 2020 is postponed to take place on 14-18 July 2020.
2. The Tribunal will confer with the Parties on 27 April 2020 with respect to the developing global health situation and the feasibility' of conducting the July 2020 hearing in person in London, England.
3. In the event that an in person hearing does not appear feasible, the Tribunal will coordinate with the Parties with respect to the organization of the hearing by videoconference.
4. The procedural timetabled adopted as Annex 1 to the Tribunal’s Order No. 1 is revised according to the timetable set out as Annex 1 to this Order. (emphasis in original)
1. The Respondent’s request that the Tribunal strike from the record (a) Section II.A and para. 32 of the Rejoinder on Jurisdiction; (b) the second witness statement of Mr. Urbina; (c) Section II.B and para. 34 of the Rejoinder on Jurisdiction; and (d) Deloitte’s third report is denied.
2. The Respondent’s request that the Tribunal strike from the record Annex C-639 is granted.
3. The Respondent’s request that the Tribunal declare inadmissible the Claimant’s characterization of its investment as a "claim to money, goodwill and other assets and any claim having an economic value" is denied. However, the Respondent’s may provide any written response in wishes to make to this argument in a brief further submission by no later than Monday, 1 June 2020. (emphasis in original)
|Professor Albert Jan van den Berg (President) Professor Guido S. Tawil Professor Raúl Emilio Vinuesa|
|Jonathan C. Hamilton Rafael Llano Michelle Grande Jaime Crowe John Dalebroux Sandra Huerta Paulo Maza Sophia Castillero Antonio Nittoli Nadia Navarro Martinez White & Case Rob Rosen David Kay Party Representatives Yoav Doppelt Javier Garcia Daniel Urbina Horacio Albin Witnesses Yvette Austin Smith Darrell Chodorow Alexis Maniatis Brattle Group Saúl Donado Juan Rodolfo Pérez Walter Martinez Experts||Ing. Roberto Malouf Licda, Edith Flores de Molina Lic. Alexander Cutz Lic. Jorge Luis Godínez Licda. lvannia Ponce Licda. Giselle Rodriguez Licda. Karla Liquez Ministerio de Economía de Guatemala Licenciado Jorge Luis Donado Vivar Licenciado Mario Antonio de Jesús Morales Licenciada Ana Luisa Gatica Licenciado Mario René Mérida Licenciado Julio Eduardo Santiz Licenciada María Gabriela Hernández Jose Velasquez Mario Lutín Procuraduría General de la Nación Eduardo Silva Romcro José Manuel García Represa Juan Felipe Merizalde Catalina Echeverri Ruxandra Esnau Federico Arata Ana Durán Laura Arboleda Gutierrez Santiago Soto García Anne Driscoll Melina Mirambeaux Hernandez Mateo Mezzera Sofia de Murard Jean-Philippe Nguyen Dechert LLP|
|Javier Novales María José Alcazar Alexander Morales Reyes Novales Abogados||David Muñóz Witness Marcelo Shoeters Gustavo De Marco Alan Rozenberg Compass Lexecon Ángel Menéndez Edvin Montoya Legal Experts Pedro Legris Carla Calá Team Compass Lexecon|
|Mr. Garth Schofield, Senior Legal Counsel Mr. José Luis Aragón Cardiel, Legal Counsel Ms. Elena Laura Álvarez Ortega, Assistant Legal Counsel Ms. Vilmante Blink, Case Manager|
|Ms. Silvia Colla Mr. Daniel Giglio|
|Mr. Trevor McGowan Ms. Georgina Vaughn Mr. Dante Rinaldi|
|Law in Order|
|Mr. Jason Aoun|
[t]he Tax Administration shall respond to questions formulated by whoever has a personal and direct interest over the concrete tax situation, with respect to the application of this Code and the tax laws... The opinion does not have the character of a resolution, is not susceptible to challenge or any appeal and has a binding effect on the Tax Administration, with respect to the concrete case specifically consulted...14 (emphasis omitted)
...that value which the taxpayer indicates it has overpaid for the purchase of the acquired entity’s capital cannot be considered as goodwill, [given that] the same taxpayer acknowledges that it does not have a feasibility study regarding the purchase of business, and that it can neither include nor document the purchase price of said business.96
1. TO DECLARE THE NULLITY of the Hearing No. [A-2014-21 -01 -000030 / A-2014-21-01-000056, respectively] of 26 March 2014 and its respective notification, carried out on 27 March 2014 to the contributor [DEOCSA /DEORSA, respectively], leaving without effect all procedural steps taken after the notification of the above-referenced hearing, without affecting the efficacy of the evidence rendered in due time by the contributor.
2. To grant a new Hearing according to the legal formalities to the contributor [DEOCSA / DEORSA, respectively].109
a. Is it valid, is it technically and legally correct and, thus, applicable, to apply the method of "future discounted dividend" to determine the value of the shares acquired by the Buyer which, as was set out, on the basis of the available information and reasonably and objectively applied, results in a value of...? And, as a consequence, would this be the value to be deducted from the Price in order to determine the amount of goodwill amortization under articles 26 of Decree 26-92 of the Congress of the Republic and its amendments and 33 of Decree 10-2012 of the Congress of the Republic, since its entering into force?
b. Is it deductible the amount of interests paid in relation to the Credit, irrespective of the juridical acts described in section "B" above and as a result of which the Credit has become a passive of the Distributor, within the limits of Articles 38 letter "m" of Decree 26-92 of the Congress of the Republic and its amendments and article 21 section 16 and article 24, of Decree 10-2012 of the Congress of the Republic, since its entering into force?121
That, according to the provisions that regulate the Guatemalan tax system, taxpayers shall keep accounting records in accordance with Generally Accepted Accounting Principles so that the discounted future dividend method used by the taxpaying entity, [Deocsa], is not expressly regulated by the tax provisions. However, its use is technically correct within the applicable legal framework as analyzed in the section on Legal Analysis. Consequently, the value of the acquired shares indicated in the query, calculated using the Future Dividend Discount Model, is the value to be deducted from the Price to determine the amount of amortizable goodwill according to articles 26 of Decree 2692 of the Congress of the Republic and amendments (for fiscal years 2011 and 2012), and 33 of Decree 10-2012 of the Congress of the Republic. B) Regarding the interest resulting from credit acquired by the aforementioned entity, pursuant to articles 38, letter m) of Decree number 26-92; and 21, numbers 16 and 24 of Decree number 10-2012, both of the Congress of the Republic, and the limitations established therein, its deduction is appropriate provided that it is supported and documented according to the section on legal analysis.
Pursuant to Article 102 of the Tax Code, the answer to the query made by the interested party cannot be resolved, disputed, or appealed in any way and only has a binding effect for the Tax Administration regarding this specifically consulted case.123
One of the tax matters that has our important attention are the two "Reverse Mergers" operated [...] Under Guatemala law, all reverse mergers generate a lot of attention within the ranks of SAT. We have information that SAT has acted very drastically in other reverse merger cases, even arguing that the structure was implemented as a mechanism to defraud the Guatemala tax system. In the present case, we were not able to determine if the large tax adjustments referred...above originates as consequence of the reverse merger. The Consultation Procedure referred...above is definitely related to the reverse merger and sets the record straight regarding two aspects of that merger; the deduction of interest for the debt incurred by the parent, and the amortization and calculation of the "goodwill" value of the negotiation. However, many other elements of the merger may also come up in the form of tax adjustments and these will always be against DEORSA and DEOCSA as the surviving entities. We did not identify any specific claims, and can only infer that these two companies are not entirely isolated from future claims derived from the reverse merger.
The Client should request specific information regarding the tax claim and material adverse effects on the situations of those claims... We believe that the tax information available is very poor. An in depth assessment of a tax case can only be done contrasting SAT’s arguments with the corresponding defense, including an analysis of the evidence presented at both administrative and court levels.169
The aspect that relates to the "reverse merger" should also be commented...The effect of this merger also produces a goodwill that must be amortized. Subsequent to the merger a consultation procedure was filed as explained above. SAT responded favourably to both questions leaving no doubt as to the deductibility of the interests, and the amortization of the goodwill. After SAT’s response was delivered, we found no further tax adjustments subsequent to SAT’s nullification of the original 2014 tax notices. We’re almost sure that SAT’s responses clarified the issue to the point that no further adjustments were merited.
Regarding some Tax inquiries sent, the Company confirmed that as a result of the Consulta made to the SAT, the Income Tax Declarations for the fiscal years 2011, 2012, 2013 and 2014 were rectified and the corresponding taxes were paid; however, no documents were presented for our review to verify this affirmation.170
Had the due diligence and valuation team had any doubts that the deductions were allowable, we would have brought it to the attention of the IC Power Board. We did not because we had no concerns regarding the deductibility of the interest and goodwill amortization on the loans, given the existence of the Binding Tax Opinions.181
the person who, through misrepresentation, cover-up, manipulation, trickery, or any other type of deception, leads the Tax Administration to error in the determination or payment of tax obligations, such that it results in detriment to or underpayment in tax collection, commits the crime of tax fraud"269