VZCZCXYZ0003
RR RUEHWEB

DE RUEHPE #1338/01 2261659
ZNR UUUUU ZZH
R 131659Z AUG 08
FM AMEMBASSY LIMA
TO RUEHC/SECSTATE WASHDC 9139
INFO RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC

UNCLAS LIMA 001338 
 
SIPDIS 
SENSITIVE 
 
STATE FOR EEB/IFD/OIA AND L/CID 
COMMERCE FOR 4331/MAC/WH/MCAMERON 
PASS USTR FOR BHARMAN AND MCARRILLO 
 
E.O. 12958: N/A 
TAGS: EINV KIDE PGOV CASC OPIC USTR ETRD PE
 
SUBJECT: PERU 2008 REPORT ON INVESTMENT DISPUTES AND EXPROPRIATION 
CLAIMS UPDATE 
 
REF: LIMA-EEB-WHA E-MAIL 07/31/08 
STATE 43784 
 
SENSITIVE BUT UNCLASSIFIED, HANDLE ACCORDINGLY 
 
¶1. (U)  The following is an updated version of post's submission 
(ref A) for the State Department's 2008 527 Report (ref B).  The 
updates are to Claimant D's cases. 
 
¶2. (U)  Begin text. 
 
The US Government is aware of eight (8) claims that may be 
outstanding against the Government of Peru. 
 
a. Claimant A 
 
b. 1999 
 
c. Claimant A is involved in a dispute with the GOP regarding the 
refund of value-added tax on gold exported from Peru between May 
1997 and February 1999.  SUNAT, the tax agency, has withheld roughly 
$600,000 that claimant contends it is entitled to receive as a tax 
refund.  The Tax Court issued a decision in Claimant A's case to 
wait until a parallel criminal case against Claimant A's local 
general manager is resolved.  The company has appealed this 
decision, arguing that the Tax Court had all the necessary 
information to make a ruling and that such a position creates undue 
delay.  The Superior Court, which heard the appeal, issued a 3-2 
decision against the Claimant.  The Claimant appealed the case to 
the Constitutional Court, which also refrained from issuing a 
resolution until after the criminal case concludes. 
 
The criminal case against Claimant A's local general manager is part 
of a larger case involving numerous defendants from several 
companies.  The appeals-level prosecutor recommended that Claimant 
A's executive be excluded from the case.  The national penal court 
agreed in November 2007, ruling that the case against the Claimant's 
local manager and six others was without merit.  The SUNAT 
prosecutor has appealed this ruling; meanwhile, the oral trial 
continues for the other defendants. 
 
Embassy's last contact with Claimant A was July 30, 2008. 
 
a. Claimant B 
 
b. 1999 
 
c. In October 1999, the GOP's forestry and parks authority, INRENA, 
obtained an emergency decree halting the movement of logging 
equipment and lumber in several of Peru's jungle provinces.  INRENA 
shut down a logging operation in which Claimant B had invested $2 
million and seized lumber intended for export to Claimant B.  The 
GOP alleged that the Peruvian company was engaged in illegal 
logging.  Claimant B denied the charges, asserting that the GOP's 
actions were intended to put Claimant's partner out of business. 
Claimant and its Peruvian partner waged a legal battle in Peru 
against INRENA.  A court in Madre de Dios ruled in 2002 that the 
decommissioned lumber had to be returned to the Peruvian partner, 
and INRENA complied.  The Peruvian company was acquired by another 
company which has not exported wood to Claimant in recent years. 
 
Claimant B has not sought Embassy assistance since 2002, and this 
case is closed. 
 
a. Claimant C 
 
b. 2001 
 
c. Peruvian tax agency SUNAT served Claimant C in November 2001 with 
a $49 million tax assessment.  SUNAT claimed that Claimant's local 
power company under previous ownership underpaid taxes from 
1996-1999 due to improper use of depreciation after the 
privatization of the power company.  Claimant purchased the 
privatized company in 1999.  The power company was privately audited 
from 1996-1999, and its financial statements for those years were 
approved by GOP representatives on the company's board and by the 
GOP privatization agency. 
 
In December 2001, Claimant filed an administrative claim against the 
tax assessment.  In September 2002, SUNAT upheld its assessment but 
reduced the amount to $43 million.  In late September 2002, Claimant 
appealed this decision to the Tax Court.  The pending assessment 
against Claimant now totals more than $50 million with interest. 
The Tax Court issued in May 2004 a decision disagreeing with the 
method of depreciation employed by the company and asking SUNAT to 
 
recalculate its assessment.  Claimant argues that SUNAT's 
reassessment violates a Legal and Tax Stability Agreement between 
Claimant and the GOP. 
 
Claimant C and the GOP submitted this case to international 
arbitration under the auspices of the World Bank's International 
Center for Settlement of Investment Disputes (ICSID) in October 
¶2003.  The ICSID tribunal was constituted in June 2004, and the 
proceedings were closed (all submissions finalized) on June 19, 
¶2008.  The arbitration award is to be signed within 120 days from 
June 19, 2008. 
 
a. Claimant D 
 
b. 2003 
 
c. In December 2003, tax agency SUNAT assessed Claimant D $9 million 
in fines and reduced its income tax credit for 1998 from 32 million 
Soles (Peruvian currency) to 9 million Soles.  The assessment was 
based on SUNAT's claim that Claimant's 1997 merger with a local 
metal refining company had no economic substance.  Claimant believes 
the merger was done correctly and that its receipt of applicable tax 
benefits was in strict compliance with existing Peruvian law.  SUNAT 
subsequently assessed the company with additional fines for the 
1999-2003 tax years, increasing Claimant's tax liability to over 
$180 million.  In August 2007, Claimant won the claim for the 1998 
tax year, totaling $17 million.  Claimant was very grateful for 
Embassy and US Congress assistance.  The 1999-2003 claims are 
working their way through the tax court, and Claimant is confident 
they will also be resolved favorably based on the precedent set by 
the 1998 case. 
 
SUNAT also claims that Claimant owes $100 million in VAT for 
holdings certificates for 1999-2004 related to exports of goods. 
SUNAT is treating the holding certificates as domestic sales, but 
Claimant maintains the certificates are a financing mechanism and 
that all goods were exported (hence not subject to VAT).  These 
claims are in three separate cases.  The first, for $2.2 million 
from FY 2004, was heard by the Tax Court (second instance) and a 
resolution is expected in 2008.  The second, for $68 million 
covering FY 1999-2001, is still pending with SUNAT (first instance). 
 This third, for $29 million covering FY 2002-2003, was appealed by 
Claimant and is pending before the Tax Court. 
 
Post is in regular contact with Claimant D, last meeting on August 
8, 2008. 
 
a. Claimant E 
 
b. 1970 
 
c. Following receipt of a letter from Congressman Silvestre Reyes 
(Texas) concerning Claimant E's case in December 1999, Embassy 
received a letter from Claimant in February 2000 and met with 
claimant at his request while he was visiting Peru in May 2000. 
According to Claimant, in about 1970, Peru's military government 
expropriated his farm as part of a general land reform act that 
expropriated farms over 250 hectares.  Claimant's farm, however, is 
just under 200 hectares.  Claimant was issued compensation bonds, 
which have since become worthless as the result of hyperinflation. 
Claimant asserts that, because he believed the expropriation to be 
illegal and because he was living in the United States at the time, 
he made no attempt to redeem the bonds.  Claimant has provided no 
estimate of the land's current value, maintaining that his goal is 
to have it returned. 
 
Claimant began efforts to recover his farm in 1999.  At Embassy's 
suggestion, he joined an association composed of others whose land 
was expropriated. Claimant has also contracted legal counsel in 
Peru, but has not separately pursued remedies through the Peruvian 
courts. 
 
Embassy Officers met with Claimant in 2000, and were in contact with 
Claimant on one occasion in 2001.  Embassy officers have requested 
details on the expropriated property, a timeline of events related 
to the expropriation, and any legal analysis supporting the 
Claimant's assertion that the expropriation did not comply with 
Peruvian law.  To date, Embassy has not received this information. 
 
Post has had no contact with Claimant E since July 2001. 
 
a. Claimant F 
 
b. 1976 
 
c. According to Claimant F, pursuant to the Agrarian Reform Law, the 
Peruvian Agriculture Ministry (MinAg) in 1976 transferred about 60 
hectares of land he had purchased in 1964 to the Comunidad Campesina 
de Oyon (CCO), located in the district and province of Oyon in the 
department of Lima.  MinAg allegedly did so without his knowledge 
and without notifying him of the action. 
 
Claimant hired a lawyer to undertake administrative procedures for 
recovering his land in 1976, but the claim was lost, and in May 2000 
MinAg found that his claim had no merit.  He appealed 
administratively and also received a letter in November 2000 from 
the Huaura Superior Court indicating that the GOP's General Office 
of Agrarian Reform had mistaken him for another landholder with a 
similar name.  Simultaneously, Claimant filed suit against local 
mining firm Buenaventura, which Claimant asserts took advantage of 
the title dispute to cut down all of the trees on what was wooded 
land.  Claimant also says that the dispute led to threats against 
him from the CCO, and that terrorist activity in the area prevented 
him from returning to his land until 1990. 
 
Claimant sent Embassy documents in November 2000 related to the 
alleged expropriation of his land.  At Embassy's request Claimant 
provided a brief letter laying out the facts of the case in March 
¶2001.  Embassy forwarded this letter to MinAg, with a request that 
it be given appropriate attention.  The Ambassador received a letter 
dated May 6, 2002 from MinAg, confirming that the land had been 
transferred under the agrarian reform program to the CCO on June 19, 
1976, and that title had been confirmed to the CCO on November 8, 
¶1982.  MinAg asserts that, as a result, Claimant only has a right to 
claim the fair market value of the land, and must pursue this 
through the courts. 
 
Claimant F has not contacted the Embassy for assistance since 2002. 
 
a. Claimant G 
 
b. 2000 
 
c. Claimant provides telecommunications services over the world's 
first integrated global Internet protocol based network and has 
deployed a sub-sea fiber optic network around South America.  The 
submarine fiber and transmission equipment sit on the ocean floor 
more than 12 nautical miles from shore, except where a cable system 
lands in a country to connect that country to the worldwide 
network. 
 
Tax agency SUNAT conducted an assessment of Claimant's assets.  Per 
SUNAT's request, Claimant paid customs duties and VAT on all goods 
imported into Peru, including for equipment extending 12 nautical 
miles from Peru's coast.  In November 2000, SUNAT re-assessed 
Claimant's property and imposed $43 million in additional duties and 
VAT, based on an assessment of equipment located between 12 and 200 
nautical miles from the coast of Peru.  Claimant has appealed the 
reassessment. 
 
Claimant G has not contacted the Embassy for assistance since 2005. 
 
a. Claimant H 
 
b. 1996 
 
c. Claimant H purchased an existing light manufacturing facility in 
1994 and began operations the same year.  Although the company 
complied with all district regulations and received all necessary 
permits, the city of Lima, the governing municipality, refused to 
finalize the permitting and registration process for the facility on 
the grounds that it is located in an environmentally sensitive 
area. 
 
Claimant presented its permits and details of the plant to the 
District Government on June 6, 2005.  The district government 
processed the paperwork and sent it forward to the Lima Provincial 
Government.  In 2008, all the necessary permits were approved and in 
place to allow the facility to continue to operate.  However, 
Claimant has decided to move to a new facility and is using the 
permits to sell the existing facility.  Claimant H ceased to have a 
claim against the Government of Peru and is grateful for Embassy 
advocacy. 
 
This case is closed as of 2008. 
End text. 
 
¶3. (SBU)  As far as post knows, Claimants have not signed Privacy 
Act Waivers.  The names of the Claimants are as follows: 
 
A - Princeton Dover 
B - Newman Lumber 
C - Duke Energy 
D - Doe Run 
E - Jaime Muro-Crousillat (Amcit) 
F - Manuel Vizurraga (Amcit) 
G - Global Crossing 
H - Kimberly-Clark. 
MCKINLEY