COMMERCIAL DISPUTE SUCCESS STORIES - MOTOROLA,

UNCLAS LIMA 000349

SIPDIS

SENSITIVE
SIPDIS

DEPT FOR WHA/AND, WHA/CEN, WHA/EPSC, EB/IFD/OFD, EB/CBA,
EB/IFD/OIA
TREASURY FOR OASIA/INL, DO/GCHRISTOPOLUS
COMMERCE FOR 4331/MAC/WH/MCAMERON
USTR FOR BHARMAN

E.O. 12958: N/A
TAGS: EINV ECON KIDE PE
SUBJECT: COMMERCIAL DISPUTE SUCCESS STORIES - MOTOROLA,
PARSONS AND SCIENTIFIC GAMES



1. (SBU) Summary. Aside from the ATPDEA commercial
disputes, Embassy Lima handles a substantial number of other
commercial disputes. Over the past two months, three of
these cases have been successfully resolved in favor of the
U.S. companies. In Motorola's case, the Tax Court disagreed
with the Peruvian Tax Authority's (SUNAT) assertion that
Motorola owed more than $20 million in back taxes. In the
Scientific Games case, Post worked closely with key GOP
officials and President Toledo to stop the enactment of a
proposed law that would have caused a U.S.-led consortium's
investment of $30 million to leave operations in Peru.
Parsons/Cesel, after winning its arbitration case against
PARSSA in 2004, received two partial payments of $1.9
million and approximately $382,000 in December 2005 and
January. These cases highlight Post's advocacy efforts and
coordination with the GOP to help resolve pending cases and
improve the ability of U.S. companies to do business in
Peru. End Summary.

Motorola
--------------


2. (SBU) Between 1997-1998, Motorola worked with Telefonica
de Peru to build and deploy the first CDMA mobile phone
network in Peru. The term of the contract was four years;
the value of the project was $500 million. At the end of
1998, the Peruvian tax authority (SUNAT) charged Motorola
with having incorrectly deducted certain expenses in its
1997 tax filings. In 2000, SUNAT used the same basis to
charge Motorola for incorrectly filing its 1999 tax return.
SUNAT sent the company two bills for fines and penalties
totaling $4.8 million for the 1999 filing and $16 million
for the 1997 filing.


3. (SBU) After several years, the 1999 case came before the
Tax Court in mid-2004. In September 2004, Motorola argued
before the Court that its expenses noted on its tax filings
in 1999 were legitimate business expenses. In December
2004, the Tax Court ruled in favor of Motorola. However,
the GOP had approved a law on October 24, 2004 that allowed
SUNAT to challenge the tax court's decision and the case was
referred to the Supreme Court. In January 2005, the Supreme
Court upheld the Tax Court's decision in Motorola's favor
regarding the 1999 filing. SUNAT, due to lack of support
from the Ministry of Economy and Finance (MEF) and the Tax
Ombudsman, was unable to challenge the Supreme Court's
decision.


4. (SBU) The Supreme Court decision and subsequent actions
by the MEF and the Tax Ombudsman established a precedent to
resolve the 1997 case using the same legal considerations.
The Embassy had worked with the MEF, encouraging it to turn
down SUNAT's request to take the matter to the Supreme
Court. The MEF, however, allowed the case to move to the
Supreme Court. On December 9, 2005, the Supreme Court ruled
in favor of Motorola on its 1997 tax case. The overall
savings to the company was $20.8 million.

Scientific Games
--------------


5. (SBU) Georgia-based Scientific Games Corporation (SGC)
contacted us in early July to seek USG assistance in saving
its $30 million investment in the Peruvian Lottery system.
The company had partnered with Louisiana-based International
Lotto Corporation and three Peruvian handicapped
associations to form a consortium in Peru. The
consortium provides 600 jobs for handicapped Peruvians,
income for several well-known Peruvian associations for the
handicapped (Anne Sullivan Center for the Blind) and tax
revenue for the Peruvian government. The U.S. company's
Greek competitor had initiated a law in Congress that would
have changed the legal framework under which the investment
had been made, thereby forcing the U.S.-led consortium out


of business.


6. (SBU) On July 5, the Ambassador sent a letter to
President Toledo on behalf of the company (Note: the
American Chamber of Commerce sent letters in June to both
the Prime Minister and the Minister of Women's Affairs to
make them aware of the issue. The letters did not prevent
the Council of Ministers from approving the law. End Note.)
That same day, President Toledo and his Cabinet attended the
U.S. Independence Day reception at the Ambassador's
residence. Ambassador Struble and the Commercial Counselor
raised the issue directly with President Toledo, who agreed
to examine the case. On July 6 in the morning, Scientific
Games local counsel met with the President's staff to review
the problems with the law.


7. (SBU) As a result of these combined efforts, President
Toledo issued a resolution against the law on July 6. The
next day, several Peruvian Handicapped Associations rallied
in front of the Presidential Palace to express their
appreciation to President Toledo for his action.


8. (SBU) In December 2005, patrons of the Greek competitor
once again introduced a bill into Congress to modify the
investment framework for gaming companies. We responded
again by counseling Scientific Games' legal counsel and
calling MEF interlocutors to make them aware of the repeated
attempt to force a U.S. company out of business. The bill
died in committee. Legislators then presented and
unanimously passed a bill that allows the company to
continue operations.

Parsons
--------------


9. (SBU) Parsons/Cesel entered into a consulting services
agreement with state-owned PRONAP (now PARSSA) to provide
design services for potable water supply and wastewater
systems. During the performance of the contract,
Parsons/Cesel performed additional work at the direction of
PRONAP but had yet to receive payment. Parsons/Cesel
initiated arbitration in June 2001 in order to recover the
costs for this additional service. In March 2004, the
arbitration panel found in favor of Parsons and ordered the
state-owned company to pay approximately $1.5 million. The
GOP disagreed with the binding arbitration decision and
appealed to the Judiciary in April 2004, requesting an
annulment of the arbitration decision. According to the
GOP, the arbitration panel was neither independent nor
impartial, as PARSSA was not included in the process of
determining the arbiters.


10. (SBU) The case proceeded to the Judiciary for action.
After a year, in August 2005, the Judiciary issued its
ruling in favor of Parsons/Cesel, denying a GOP appeal to
reject the binding arbitration. The court ordered PARSSA to
pay the amount owed, which with interest could total
approximately $3 million. On September 2, the Ministry of
Housing appealed the August ruling in favor of Parsons,
claiming there were irregularities in the handling of the
arbitration case. Parsons/CESEL formally appealed the
submission of the case in October 2005, citing a mid-July
Supreme Court Directive that instructed the Judiciary to not
overturn arbitration decisions.


11. (SBU) After the Ambassador and Commercial Counselor
sent repeated letters to the Minister and Vice Minister of
Housing on Parsons behalf, the company received a $1.9
million partial payment for its arbitration award on
December 23. In early January, Parsons received a second
partial payment of soles/1.3 million (approximately
$382,000). Parsons and the GOP continue to negotiate the
final payment of the remaining soles/480,000 (approximately
$141,000) in legal fees.


Comment
--------------


12. (SBU) The GOP, with the assistance of Commercial
Disputes Coordinator Aurelio Loret de Mola, has made strides
to resolve the ATPDEA disputes. Success, however, breeds
more work: the number of U.S. companies that have
approached the Embassy requesting advocacy has increased.
Post, specifically the Front Office, FCS and Econ offices,
have established strong working relationships with key GOP
officials to resolve these and other cases. The resolution
of these cases, particularly Parsons/Cesel, with the Supreme
Court Decree to uphold arbitration awards, should have far-
reaching positive effects for companies doing business in
Peru.

STRUBLE