DOMINICANS AND VERIZON AGREE ON TERMS: CLEAR WAY

UNCLAS SANTO DOMINGO 003659 SIPDIS SIPDIS DEPT FOR WHA P. DUDDY; WHA/CAR B. NICHOLS, D. SEARBY, K. WILLIAM, WHA/PPC, WHA/EPSC, EB/CIP/BA FOR N. FETCHKO E.O. 12958: N/A TAGS: ECPS DR EINV ETRD SUBJECT: DOMINICANS AND VERIZON AGREE ON TERMS: CLEAR WAY FOR SALE TO AMERICA MOVIL REF: SANTO DOMINGO 1259 AND 2375 ¶1. (U) On December 1 the Dominican government and Verizon signed and agreement which brought to a close the sale of Verizon,s Dominican operation, Verizon Dominicana, eight months after it was first announced in April. The agreement involved a payment by Verizon of $170 million dollars to the Dominican government. ¶2. (U) The sale to Mexican telecom America Movi for $2.3 billion hit a snag in June when the Doinican tax authority informed Verizon that is mut pay $523 million in capital gains taxes. Verzon contended from the beginning that the sale ofthe Canadian holding company owning Verizon Domiicana and a series of complex transfers involving companies in Venezuela and Luxembourg were designd to avoid legally a tax obligation in the Domincan Republic. Verizon reported that it would paysome $700 million in capital gains in the UnitedStates. ¶3. (SBU) The Embassy became involved inJuly when the Ambassador helped arrange a meeting between high-level Verizon executives and President Fernandez. The President decided to appoint the Minister of Finance as the point person in charge of seeking a political solution to the dispute. This encounter led to a series of meetings involving the Finance Minister and the President during which a political solution was sought. During negotiations and despite and agreement between Verizon and the Dominican President to keep talks private, the issue became public and heated when first the tax authority and then Verizon sought to express their respective positions in the local media. ¶4. (U) The settlement signed last week was drafted by Verizon to indicate clearly that the company acknowledged no wrongdoing and that it had no tax obligation to the Dominican government relating to the sale. Verizon believes that the $170 million payment made under the settlement fully releases the company from any future financial obligation to the Dominican government. The language agreed on by the parties characterized the payment as a settlement payment, to put an end to various disputes. The terms of the agreement were such that neither party renounced its position. ¶5. (SBU) Comment: We see the conclusion of the sale as a positive outcome to a complex and sensitive problem. Throughout the dispute, the Embassy repeatedly stressed to the Dominican government publicly and in private the need to resolve the issue in a transparent manner so that foreign companies interested in doing business in the Dominican Republic will not be deterred by unpredictable tax treatment. This message was also signaled to the Dominicans by U.S. government officials including Secretary Rice during an October visit by President Fernandez to Washington. BULLEN