The latest edition of Leaders League 2021 includes the firm as recomended and highly recomended in the areas of Arbitration, Competition & Antitrust, M&A and Corporate Tax for Ecuador. Team members are also recognized in their respective areas. Oscar Vela and Andres Larrea for Arbitration; Bernardo Tobar and Cesar Zumarraga for M&A; and Alvaro Sevilla and Bernardo Tobar for Competition & Antitrust.
Visit the full rankings in Leaders League.
We are glad to forward herewith the CORPORATE TAX GUIDE, LAWS AND PRACTICE IN ECUADOR, prepared by our firm and published by the prestigious entity Chambers & Partners, as a complimentary reference tool in this specialty.
Should you have any doubts or specific requirements, please do not hesitate to contact us; we will be happy to assist you.
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By ZVS Tobar in CORPORATE, M&A , news , TAX AND LABOR CONSULTANCY
As of March 28, 2020, the guidelines issued by the Ministry of Labor for the reduction, modification or emergency suspension of working hours in the private sector, during the Emergency Declaration, have been amended in the following terms:
For the application of this and any other Labor Regulation during the State of Exception, you can contact us at firstname.lastname@example.org.
You can access the full text of the Ministerial Agreement No. MDT-2020-080 of March 28, 2020 in the ‘DOWNLOAD RELATED MATERIALS’ section (Spanish version only).
By ZVS Tobar in NEGOTIATION, CONFLICT RESOLUTION AND DISPUTES , news , TAX AND LABOR CONSULTANCY
This May one year ago the Ecuadorian Government notified those countries with which it had executed Bilateral Investment Treaties (“BITs’”), with the formal denunciation. As a consequence, those new foreign investments that are executed in Ecuador will no longer be subject, nor will they enjoy, the protection that the BITs’ granted to the nationals of the countries with a BIT. Therefore, we consider this to be an appropriate time to analyze in general terms the protection regime for foreign investment under Ecuadorian legislation.
As a general principle the Constitution recognizes and protects private property, which includes the investment made by private parties. The Constitution makes no exception to such principle that signifies that all private investment is protected under its terms, no matter its categorization (local, foreign, etc.).
Similarly, the Investment, Commerce and Production Code (“COPCI”) is in force since December 2010. The COPCI contains a detailed classification of the investment, differencing between: (1) investments for production, (2) new investments, (3) foreign investment, and, (4) local investment. The legal effect of this classification is important only to define which tax incentives apply to new investment and to the investment for production.
Moreover, the COPCI develops the constitutional principle that protects private property by recognizing other principles that naturally derive from the first. Non-discrimination is the first principle that the COPCI recognizes. Under this principle, all investors have the right to enjoy equal conditions for the administration, operation, expansion and transfer of their investments; additionally, foreign investors have the right to enjoy the same rights as local investors. The second principle recognized by the COPCI is the prohibition of arbitrariness. This principle provides that the investment cannot be subject to any arbitrary actions. The third recognized principle is an express prohibition on any form of confiscation.
In relation to the protection of foreign investments, and as was mentioned in the introduction, in May 2017 Ecuador denounced all the BITs’ that were in force with third nations. Most of the BITs’ contained provisions under which the protection granted was extended for an additional period of time to those investments made until the effective termination date. In that sense, foreign investments executed under the umbrella of a certain BIT and made before the BIT effective termination date, are protected and guaranteed by the terms of such treaty. On the other hand, new foreign investments to be made subsequently to the BIT’s effective termination date will no longer be protected by its terms.
As a consequence, the main instrument that a foreign investor currently has in order to protect its investment in Ecuador is an investment protection agreement with the Ecuadorian Government under the terms of the COPCI (an “Investment Protection Agreement”).
Under the COPCI and its regulations, any investor that (1) makes new investment, and (2) has a minimum disbursement of 250,000 USD during the first year, is eligible to request and sign an Investment Protection Agreement with the Government. The COPCI sets forth that under an Investment Protection Agreement the parties can establish: (a) the treatment that the Government shall grant to the investment, namely, the principles that shall govern and protect the investment and the rights granted to the investor; (b) stability over the tax benefits detailed in the COPCI; and, (c) national or international arbitration, provided that some conditions are met.
Since the entry into force of the COPCI, investors have used the Investment Protection Agreements mainly to obtain certain tax benefits and stability over their investments. They have developed a tax chapter in the agreement, leaving aside the investment protection chapter.
In this particular moment in which Ecuador has no longer valid BIT’s, and until the Ecuadorian Government signs the so called “Bilateral Investment Agreements” with third countries, the Investment Protection Agreements are the best instrument that a foreign investor has in order to agree to the principles that shall govern and protect the investment and the rights granted to the investor.
 There is one exception in the COPCI that allows for the confiscation of private property and relates to the expropriation of real state for the sole and only purpose of executing social development programs, sustainable projects for the environment and collective wellbeing. In the case of an expropriation for the detailed purposes, the Government must apply due process, prepare a valid assessment and pay the owner an adequate and fair compensation.
 Most TBIs’s provide for a protection period of 15 years counting from the effective termination date.
 The effective termination date for most of the TBI’s was 12 months from the date in which the Ecuadorian Government notified with the denunciation, which in most cases was done on May 16th, 2017.
 Under the COPCI new investment is defined as the flow of resources destined to increase the capital on the economy, through an effective investment in production assets that allow for (1) extend the future production capacity, (2) generate a larger level of production of goods or services, and (3) generate new employments.
By Sevilla Álvaro in CORPORATE, M&A , news
On January 15, 1986, Ecuador signed the International Center of Settlement of Investment Disputes (ICSID) Convention which offers a neutral forum for international dispute resolution. During the 90´s, Ecuador followed the general trend adopted by many other South American countries of signing Bilateral Investment Treaties (BITs) with the intention of attracting foreign investment. On April 19, 2001, Ecuador ratified the convention during former President Gustavo Noboa Bejarano´s administration. Several years later, Ecuador became one of the most sued countries under the ICSID convention.
Since the beginning of President Rafael Correa administration (2007-2017) he manifested his hostility towards the ICSID convention: “withdrawing from ICSID is necessary for the liberation of our countries because [ICSID] signifies colonialism, slavery with respect to transnationals (…) I cannot tolerate this”, the former President said in public interviews.
Correa´s feud against ICSID basically compromised 4 steps: i) In 2008, Ecuador denounced over a third of its BITs; ii) Later in 2008, the new Constitution of Ecuador came into force and it contained a confusing provision which seemed to prohibit the country from submitting disputes to international arbitral tribunals; iii) On July 2, 2009, President Correa issued Executive Decree Nº 1823 denouncing the ICSID Convention and declared its termination; iv) A couple of years later, Ecuador denounced the termination of all of its BITs. It is worth mentioning that most of the BITs contained survival clauses, so the investors were not prevented from commencing ICSID arbitrations against Ecuador.
One of the main accusations that Correa used for terminating the BITs is that they were “unconstitutional” pursuant article 422. However, the Constitution forbids entering intro treaties or international instruments that submit jurisdiction to international arbitration tribunals in contractual or commercial disputes and investment arbitration is a complete different creature. Unfortunately, the Constitutional Court did not consider that investment arbitration is different from commercial (or contractual) arbitration and declared that the BITs were unconstitutional; The unconstitutionality argument was seconded by the National Assembly and a special committee (CAITISA) in charge of reviewing the denunciations which reached to the same conclusion.
In the 2021 presidential elections, Guillermo Lasso, a former banker, was elected as the President of Ecuador. President Lasso has vowed to attract foreign investment and break away from the leftist policies adopted during Correa´s administration. It came as no surprise that one of the first things that President Lasso would do is try to find ways for regaining the trust of foreign investors after years of political instability. On June 21, 2021, the State signed the ICSID convention and now the next step is ratification.
There is an ongoing discussion on whether the ICSID convention needs to be previously approved by the National Assembly in accordance to article 419 of Constitution. Pursuant to article 419, the ratification of international treaties will require the approval of the National Assembly in the following cases: 1) They refer to territorial or boundaries matters; ii) They establish political or military alliances; iii) They contain the commitment to issue, modify or repeal a law; iv) they refer to rights guaranteed in the Constitution; v) They compromise the State´s economic policy to international financial institutions or international companies; vi) compromise the country to integration and trade agreements; vii) They give competences of internal legal order to an international or supranational organization and; viii) They compromise the country´s natural resources, water, biodiversity, etc. In my view, the ICSID does not require the approval of the National Assembly as it does not fall in any of the categories previously mentioned; Its very nature is to offer a neutral forum to solve international disputes.
Another relevant aspect is that Ecuador will consent to submit specific disputes to that mechanism on separate instruments to be signed with foreign investors. For instance, Ecuador could be part of the ICSID convention and not have a BIT containing a standing offer to arbitrate under said convention; Hence, being part of ICSID does not equals to automatic consent to arbitrate all disputes under that forum.
On June 21, 2021, President Lasso´s General Legal Secretary sent a communication to the Constitutional Court asking them to clarify on whether ICSID needs the prior approval by the National Assembly. In this document, the General Legal Secretary clearly explained that due to ICSID´s nature it does not require the National Assembly prior approval in accordance with article 419. In addition, he said the President has the legal capacity to sign and ratify international treaties according to article 418: “the President of the Republic is responsible for signing and ratifying treaties and other international instruments. The President will immediately inform the National Assembly of all the treaties that it sings, with a precise indication of their nature cand content (…)”. Currently, the Constitutional Court has not issued a decision on this.
The signature of the ICSID convention shows the current administration´s compromise of protecting foreign investment and attracting capital to the economy. In my view, this is a positive and important step taken by President Lasso because it allows Ecuador to enter into important new agreements with the international community, which will contribute to the country´s economic growth and result in the generation of jobs for its citizens and development of important projects for their well-being.
By ZVS Tobar in Features , NEGOTIATION, CONFLICT RESOLUTION AND DISPUTES , NEGOTIATION, CONFLICT RESOLUTION AND DISPUTES , news