Choosing Investment Structure

Transcription

1 The Importance of Bilateral Investment Treaties When Structuring Foreign Investments ACC Regional Call International Legal Affairs Committee Legal Quick Hit: September 3, 2013 Presented by: Helena Sprenger Houthoff Buruma Choosing Investment Structure Tax planning BIT- planning (Bilateral Investment Treaties) 1

2 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 First BIT in 1959 (initiative of World Bank)

3 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) 3

4 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) 4

5 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 AssociaFon 5

6 New Structure (as of 2006) Mobil (Delaware) Venezuela Holdings B.V. (Netherlands) Mobil CN Holding (Delaware) Mobil Venezolana Holding (Delaware) Mobil CN (Bahamas) Mobil Venezolana (Bahamas) Cerro Negro AssociaFon La Ceiba AssociaFon 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 6

7 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 7

8 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 US 20 CANADA 40 DUTCH KINGDOM 50 BERMUDA 60 CAYMAN ISLAND 70 8

9 Dutch Kingdom BITs Netherlands Curaçao St. Maarten Aruba Dutch Kingdom BITs Albania, Algeria, ArgenFna, 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, CroaFa, 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 9

10 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, royalfes No CIT on div/cap gains received from subsidiaries Upfront tax rulings give certainty Bilateral tax treafes (100), reduce withholding tax on dividends, interest and royalfes Tax Curacao No withholding tax, 0% CIT for holdings 10

11 Add additional layer for BIT-purposes? Foreign Investor Dutch Kingdom Entity Tax-planning vehicle Host State India 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 11

12 Nigeria 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 China 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 12

13 US DUTCH ENTITY HONG KONG ENTITY Investment in CHINA 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 BITperspective 13

14 Questions Contact Information Helena Sprenger Houthoff Buruma (Lex Mundi member firm for the Netherlands) 120 West 45th Street, 19th Floor New York, NY Tel: (212) Offices in Amsterdam, Rotterdam, New York, London and Brussels 14