a) To declare that Ecuador has breached its obligations under the Treaty and international law;
b) To direct Ecuador to reimburse immediately to OEPC all amounts corresponding to the VAT reimbursements previously denied as well as any additional amounts of VAT payments made by OEPC before the date of the award and which OEPC, before such date, has requested be reimbursed;
c) To direct Ecuador to cause the SRI to reimburse promptly VAT payments made after the award upon appropriate application by OEPC;
d) To direct Ecuador to recognize that OEPC was entitled to the amounts corresponding to VAT payments already reimbursed;
e) To direct Ecuador not to undertake any action or adopt any measure that denies the economic benefit of the VAT reimbursements to which OEPC is found to -be entitled, and to take all actions and adopt any measure necessary to ensure that OEPC effectively enjoys those economic benefits;
f) To direct Ecuador to indemnify OEPC for all damages caused by its Treaty breaches, including the costs and expenses of this proceeding;
g) To direct Ecuador to pay OEPC interest on all sums awarded, and to order any further relief as may be appropriate in the circumstances,
a) To declare that Ecuador, through the Denying Resolutions and related conduct, has breached its obligations under the Treaty and international law;
b) To declare that OEPC is entitled to VAT refund as a matter of international law, Andean Community and Ecuadorian law, with respect to VAT paid on both goods and services used for the production of oil for export, including pre-production expenses and de minimis expenses associated with production activities in areas inhabited by indigenous communities;
c) To order Ecuador to cause the SRI to recognize formally that OEPC was and is entitled to reimbursement of VAT paid since July 1999;
d) To order Ecuador to cause the SRI to annul or rescind all resolutions denying such reimbursement;
e) To order Ecuador to cause the SRI to reimburse in cash to OEPC all VAT paid through December 31, 2003 and not already refunded;
f) To order Ecuador to provide formal guarantees that no action will be taken or measure adopted - denying the economic benefit of the VAT refund;
g) To order Ecuador to cause the SRI to grant all refunds requested for VAT paid from January 1, 2004;
h) To determine future damages; and
i) To award OEPC all its costs, including attorney fees.
a) The first concerns the "fork In the road" provision contained in Article VI (2) and (3) of the Treaty. In Respondent’s view, the fact that the Claimant has submitted four separate lawsuits to Ecuadorian courts constitutes an irrevocable choice to submit the present dispute to the courts or administrative,tribunals.of.the. Respondent in accordance with Aitictle' VI (2) (a) of the Treaty. This choice precludes, the argument continues, the submission of the dispute to binding arbitration as provided for in Article VI (3) (a) of the Treaty.
b) The second objection to jurisdiction is that OEPC’s claims are precluded under Article X of the Treaty, which applies to matters of taxation except with respect to some specific categories of disputes relating to an investment agreement or authorization, transfer of funds and expropriation. To the extent that one of these categories is involved, the Treaty provides for certain obligations of the host State, in particular those contained in Article II regarding the treatment of the investment, including questions relating to discrimination, fair and equitable treatment, full protection and security and other guarantees. None of them, it is contended, however, is applicable to OEPC’s claims.
c) The Respondent lastly objects to the admissibility of the Claimant’s submission that there has been an expropriation of its investment by means of the taxation measures adopted. Although expropriation is one of the categories of disputes that Article X of the Treaty allows in respect of tax matters, the Respondent contends that there is no direct or indirect expropriation involved in this case, and hence that the claims by OPEC are inadmissible.
Art. 69A. VAT paid in export activities.- Natural persons and companies that have paid the value added tax in local purchases or importation of goods used in the manufacture of goods that are exported, have the right to have that tax refunded to them without interest within a period no to exceed ninety (90) days, through the issue of the respective credit note, check or other means of payment. Interest shall be paid if the abovementioned period elapses without the claimed VAT having been refunded. The Internal Revenue Service must return what has been paid upon the formal submission of the tax return by the legal representative of the obligor, which must be accompanied by certified copies of the invoices showing the VAT paid. If misrepresentation is found in the information, the person responsible shall be fined the equivalent of double the amount that was attempted to be defrauded from the public treasury.34
Nevertheless, Article 169 of the Tax Law Regulations in effect as of the date on which the Contract was executed states as follows:
Art. 169. Tax Credit on Export of Goods: Individuals and legal entities that are exporters and that have paid VAT in purchasing the goods that they export are entitled to a tax credit for said payments; they shall be likewise entitled to credit for tax paid in purchasing raw materials, inputs and services used in products made and exported by the manufacturer. Once the goods have been exported, the taxpayer shall submit an application for the corresponding refund, accompanied by a copy of the respective export documents, to the Revenue Department...
Manufacturers are also entitled to the tax credit for VAT paid in the local purchase of raw materials, inputs and services used in producing goods for exportation and that are added to raw materials admitted into the country under special customs regimes, even if said taxpayers do not export the finished product directly, as long as said goods are actually purchased by the exporters and the transfer to the exporter of the goods produced by these taxpayers, which have not been cleared in through customs, is taxed rate zero.35
Value Added Tax Refund to Government Institutions, Exporters of Goods and the Disabled.- In order for exporters of goods to obtain a refund of value added tax paid in importing or locally purchasing, inputs, raw materials and services" used in products made and exported by the manufacturer or producer, as applicable, once the goods have been exported, said parties must apply to the Internal Revenue Department, submitting certified copies of sales receipts, import or export documents and the following, supplementary information:36
On November 18, 1999, when the VAT rate of 10% was increased to 12%, a new provision relevant to refunds also was added to the Tax Law. That unnumbered Article, after Article 55 of the Tax Law, states as follows:
Tax Credit for the exportation of goods. Natural and juridical persons who export and have paid VAT in the acquisition of the goods they export, have a right to a tax credit for said payments. They shall have this same right for the tax paid in the acquisition of raw materials, supplies and services used in the products produced and exported by the manufacturer. Once the exportation is made, the taxpayer shall request from the Internal Revenue Service the corresponding refund, attaching a copy of the appropriate exportation documents.
This right may be transferred only to the direct suppliers of exporters. Manufacturers also have a right to a tax credit for the VAT paid in the local acquisition of raw materials, supplies and services destined to the production of goods for exportation, which are added to raw materials that have entered the country under special customs systems, even though such taxpayers do not directly export the finished product, so long as these goods are actually acquired by the exporters and the transfer to the exporter of the goods produced by these taxpayers, which have not been the object of nationalization, are taxed at the zero rate.
The oil business shall he governed by specific laws.37
1. Ecuador has failed to accord the investment fair and equitable treatment and treatment no less favorable than that required by international law, in breach of Article II (3) (a) of the Treaty.
2. Ecuador has failed to treat the investment on a basis no less favorable than that accorded to investments of its own nationals or of nationals of third countries, in breach of Article II (1) of the Treaty.
3. Ecuador has impaired by arbitrary and discriminatory measures the management, operation, maintenance, use or enjoyment of the investment, in breach of Article II (3) (b) of the Treaty.
4. Ecuador has expropriated, directly or indirectly, all or part of Claimant’s investment without a public purpose; in a discriminatory manner; without payment of prompt, adequate and effective compensation; and in disregard of due process of law and general principles of treatment provided for in Article II (3) of the Treaty, all in breach of Article III (I) of the Treaty.
Neither Party shall in any way impair by arbitrary or discriminatory measures the management, operation, maintenance, use, enjoyment, acquisition, expansion, or disposal of investments...
NOW THEREFORE THE ARBITRAL TRIBUNAL DECIDES AND AWARDS AS FOLLOWS:
1. It has jurisdiction to hear and decide this case.
2. The Claimant is entitled to the refund of all VAT paid as a result of the importation or local acquisition of goods and services used for the production of oil for export, as well as reasonable pre-production costs and de minimis expenses associated with production activities, particularly relating to indigenous communities. Such refund is not included in Factor X in the Contract.
3. Except for the amount of compensation and interest determined in this Award, all requests for refund to the SRI shall follow in the future the normal administrative procedures of the Ecuadorian tax law.
4. The Respondent breached its obligations to accord the investor treatment no less favorable than that accorded to nationals and other companies under the standard of national treatment guaranteed in Article II (1) of the Treaty.
5. The Respondent breached its obligations to accord the investor the fair and equitable treatment guaranteed in Article 11 (3) (a) of the Treaty and to an extent the guarantee against arbitrariness of Article 11 (3) (b).
6. The Claimant is entitled to retain all amounts of VAT reimbursed by the SRI and the Resolutions ordering the return of such monies are without legal effect.
7. The Respondent shall pay the Claimant compensation in the amount of US $ 71,533,649.
8. The Respondent shall pay the Claimant simple interest on the amount in 7. above in the amount of US $ 3,541,280.
9. The Respondent shall pay the Claimant simple interest at the rate of 2.75% per annum on the sums in 7. and 8. above from January 1, 2004 to the date of this Final Award.
10. In order clearly to forestall any possible double recovery of VAT by OEPC, the Tribunal: (i) holds that OEPC shall not benefit from any additional recovery; (ii) directs the Claimant to cease and desist from any local court actions, administrative proceedings or other actions seeking refund of any VAT paid through December 31, 2003; and (iii) holds that any and all such actions and proceedings shall have no legal effect.
11. Pursuant to Article 38 and 39 of the UNCITRAL Arbitration Rules, the Tribunal fixes the costs of the arbitration at US $ 594,044.38 made up as follows;
a) Fees and Expenses of the Presiding Arbitrator US $ 239,841.37
b) Fees and Expenses of Arbitrator Barrera Sweeney US $ 181,220.50
c) Fees and Expenses of Arbitrator Brower US $ 140,371.51 '
d) Costs of Administration US $ 32,611.
12. The Respondent shall pay 55% of the costs of the arbitration (US $ 326,724.40), of which it has already advanced US $ 300,000. The Claimant shall pay 45% of such costs (US $ 267,319.98) out of the US $ 300,000 which it has advanced. Therefore, the Respondent shall pay to Claimant US $ 26,724.40 in respect of such costs.
13. To the extent, if any, that this Final Award has not been paid by the Respondent to the Claimant within 30 days following the date of this Final Award, the Respondent shall pay the Claimant simple interest at the rate of 4% per annum on the sums in 7., 8. and 12. above, to the extent and so long as they shall not have been paid, from the date 30 days following the date of this Final Award until the date of effective payment of said sums.
14. Each Party shall pay its own costs for legal representation and assistance.
15. All other claims are herewith dismissed.
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