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The Importance of Bilateral Investment Treaties When Structuring Foreign Investments
ACC International Legal Affairs Committee Legal Quick Hit: November 14, 2013 Presented by: Helena Sprenger Houthoff Buruma
! Tax planning ! BIT- planning (Bilateral Investment Treaties)
Choosing Investment Structure
Bilateral Investment Treaties (BITs)
! What is a BIT?
! Treaty between two states ! Protects various investments against
expropriations and unfair harmful regulations (incl. equity, debt, IP rights, concessions)
! Results in claim of individual company against “misbehaving” state
3
Bilateral Investment Treaties
0
500
1000
1500
2000
2500
3000
1990 2013
! First BIT in 1959 (initiative of World Bank)
Obligations under BITs
! Fair and equitable treatment of investors, no discrimination
! No expropriation without fair compensation (incl.
certain harmful regulations)
! Free transfer of funds
Enforcement of BITs
! Neutral forum
! Often ICSID arbitration based on Washington Convention (International Centre for Settlement of Investment Disputes)
Washington Convention
! Initiative of the World Bank in 1965, establishing neutral arbitration forum
! Currently 149 contracting States
! All contracting States must recognize and enforce an ICSID award as if it were a final judgment of a court of that State
ICSID
! Currently 168 cases pending
Argentina (25) Venezuela (29)
Important?
ExxonMobil –vs. Venezuela (similar case for ConocoPhillips)
! Multi Billion Investment of Mobil in Orinoco Oil Belt in Venezuela
! After perceived increase in political risk restructuring based on NL – Venezuela BIT
Old Structure
Mobil (Delaware)
Mobil CN Holding (Delaware)
Mobil Venezolana Holding
(Delaware)
Mobil CN (Bahamas)
Mobil Venezolana (Bahamas)
Cerro Negro Association
La Ceiba AssociaCon
New Structure (as of 2006)
Mobil CN Holding (Delaware)
Mobil Venezolana Holding (Delaware)
Mobil CN (Bahamas)
Mobil Venezolana (Bahamas)
Mobil (Delaware)
Cerro Negro AssociaCon
La Ceiba AssociaCon
Venezuela Holdings B.V. (Netherlands)
Mobil vs Venezuela
! Expropriation, offer to pay book value
! Mobil made claim under Dutch Kingdom BIT
! ICSID Arbitration pending (multiple billion USD claim), lien on assets (gold) in UK
Mobil vs Venezuela cont’d
! Venezuela claimed that restructuring was abuse of BIT
In June 2010 Interim award on jurisdiction:
BIT-planning allowed. Forms no reason to deny jurisdiction, but no
protection against actions that already occurred before restructuring
Does It Work?
! (2003) CME Czech Republic BV vs
Czech Republic re television license: award > USD 375 Mio
! (2006) ADC vs Hungary re Budapest airport: award > USD 84 Mio
BIT Due diligence
! Which BITs are available in Host State?
! Not all BIT’s are created equal
! Which investments are protected?
! Does it apply to (sub)holding companies?
BITs in Effect
0
10
20
30
40
50
60
70
80
90 U
S
CA
NA
DA
DU
TCH
KIN
GD
OM
CAY
MA
N IS
LAN
D
BER
MU
DA
Dutch Kingdom BITs
Curaçao
Netherlands
Aruba
St. Maarten
Dutch Kingdom BITs
Albania, Algeria, ArgenCna, Armenia, Bahrain (pending), Bangladesh, Belarus, Belize, Benin, Bolivia (contested), Bosnia and Herzegovina, Brazil (pending), Bulgaria, Burkina Faso, Burundi (pending), Cambodia, Cameroon, Cape Verde, Czech Republic, Chile (pending), China, Costa Rica, CroaCa, Dominican Republic, Ecuador, Egypt, El Salvador, Eritrea (pending), Estonia, Ethiopia, Gambia, Georgia, Ghana, Guatemala, Honduras, Hong Kong, Hungary, India, Indonesia, Ivory Coast, Jamaica, Jordan, Kazakhstan, Kenya, Kuwait, Laos, Latvia, Lebanon, Lithuania, Macao, Macedonia, Malawi, Malaysia, Mali, Malta, Mexico, Moldavia, Mongolia, Montenegro, Morocco, Mozambique, Namibia, Nicaragua, Nigeria, Oman, Pakistan, Panama, Paraguay, Peru, Philippines, Poland, Romania, Russia, Senegal, Serbia, Singapore, Slovenia, Slovakia, Sri Lanka, South Africa, South Korea, Sudan, Suriname, Tajikistan, Tanzania, Thailand, Tunisia, Turkey, Uganda, Ukraine, Uruguay, Uzbekistan, Venezuela (terminated), Vietnam, Zambia (pending), Zimbabwe
Choosing an Investment Vehicle
! Tax
! BIT ! Ultimate structure still needs to work from a
tax-perspective
Dutch Kingdom Entity?
! Extensive BIT treaty network (89) combined with beneficial tax treatment
! TAX (NL) • No withholding tax on interest, royalCes • No CIT on div/cap gains received from subsidiaries • Upfront tax rulings give certainty • Bilateral tax treaCes (100), reduce withholding tax on dividends, interest and royalCes
! Tax Curacao • No withholding tax, 0% CIT for holdings
Foreign Investor
Host State
Dutch Kingdom Entity
Tax-planning vehicle
Add additional layer for BIT-purposes?
! 65 BITs, including Netherlands, not including US and Canada
! Netherlands – India BIT: ! Offers UNCITRAL arbitration ! Very broad definition of investments ! Also covers (sub)holding companies
! NL – India Tax Treaty
India
! 13 BITs, including Netherlands, not including US and Canada
! NL – Nigeria BIT: ! offers ICSID arbitration ! very broad definition of investments ! covers sub-holding companies
! Nigeria – NL Tax Treaty
Nigeria
! 100 BITs, including Netherlands; not including US and Canada
! NL – China BIT: ! Very broad definition of investments ! Covers (sub)holding companies ! Offers access to ICSID or UNCITRAL
! NL – China Tax Treaty
China
US
Investment in CHINA
DUTCH ENTITY
HONG KONG ENTITY
CONCLUSION
! BIT Planning can be at least as important as tax planning!
! Consider changing investment structure if political risk increases
! Adding Dutch Kingdom entities to structure will often be preferred solution from a tax- and BIT- perspective
Questions?
Helena Sprenger Houthoff Buruma (Lex Mundi member firm for the Netherlands) 120 West 45th Street, 19th Floor New York, NY 10036 Tel: (212) 403-6705 [email protected] www.houthoff.com
Contact Information
Offices in Amsterdam, Rotterdam, New York, London and Brussels
