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