State of emergency – tax measures

state-of-emergency-tax-measures

By Executive Decree 1021 issued on March 27, 2020, the President of Ecuador, adopted the following tax measures within the state of emergency:

1. Income tax withholding:

The following entities will be required to withhold and pay on a monthly basis income tax over their total taxable income obtained in each month:

Entity activity 

Monthly income tax withholding rate (%)

Financial institutions under the supervision of the Superintendency of Banks and entities that provide mobile telephone services. 1,75%
Entities that have entered into contracts with the Goverment for the exploration and exploitation of hydrocarbons under any modality or, contracts for specific works and services under the Hydrocarbons Law or, complementary petroleum services as well as transportation of crude oil. 1,5%

The withholding tax receipt must be issued in the name of the withholding agent and the value withheld will be consider as tax credit for paying the withholding agent’s income tax.

2. Tax payment deadlines:

For this time only, the taxpayers who at this date are considered as:

  • Micro-enterprises;
  • Those domiciled in Galapagos Islands;
  • Those who are regular exporters of goods, or that 50% of their income derived from the export of goods; or,
  • Those whose economic activity is:
    1. The operation of airlines,
    2. The tourism sector, exclusively those that provide accommodation and/or food services; or,
    3. The agricultural sector.

Will be able to pay the corporate income tax for the fiscal year 2019 and the value added tax (VAT) to be paid in April, May and June 2020 as follows:

  1. Payments will be made in 6 installments during the year 2020 in the following percentages: in each of the first two months, the taxpayers are required to pay 10% of the total value; and, in each of the remaining four months, taxpayers are required to pay 20% of the total value.
  2. These payments will be made according to the ninth digit of Tax ID as follows:
Ninth Digit of Tax ID 

Payment Date

1 10th of each month
2 12th of each month
3 14th of each month
4 16th of each month
5 18th of each month
6 20th of each month
7 22nd of each month
8 24th of each month
9 26th of each month
0 28th of each month

Taxpayers domiciled in the province of Galapagos are able to make the payment until the 28th of each month..

If a payment deadline overlaps with a mandatory rest day or holiday, the deadline shall be the next working day unless that day falls on the following month, in which case the payment deadline shall be anticipated to the last working day of the month.

If the taxpayer makes the payment after the deadlines have expired, he must pay the respective interest and fines in addition to the tax

  1. The payment of 2019 corporate income tax for the entities described above, will be made from April to September 2020 in the percentages and terms indicated in numbers 1 and 2 of this document.
  2. The payment of VAT for the months of April, May and June 2020 will be made in the percentages and terms described above, in the following months:
VAT to be paid in the month of

Months of Payment:

April 2020 From April to September, 2020
May 2020 From May to October, 2020
June 2020 From June to November, 2020
  1. Taxpayers subject to the Micro-enterprise Taxation Regime shall file their VAT return on a semi-annual basis. These taxpayers will not be subject to the exception regime detailed above.

 

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DISCLAIMER: The previous text has been prepared for informational purposes. CorralRosales is not responsible for any loss or damage caused as a result of having acted or stopped acting based on the information contained in this document. Any additional determined situation requires the specific opinion and concept of the firm.

CORRALROSALES

National Assembly requires the Executive Branch to establish mandatory licenses and access to testing data and technology to fight COVID-19

licenses-testing-data-intellectual-property

Through Resolution dated March 20, 2019, the Education, Science and Technology Commission of the National Assembly (Legislative Branch) in charge of Intellectual Property matters, requested that the Executive Branch include in the emergency declaration the adoption of administrative and technical mechanisms for the establishment of “compulsory patent licenses, access to testing data and access to other technologies for the availability of vaccines, drugs, diagnoses, devices, supplies, and other useful means for surveillance, prevention, detection, diagnosis and treatment of people infected by Coronavirus (COVID-19).”

For the local IP office to have a compulsory emergency license, it will first be necessary to issue the corresponding executive decree (Presidency) or ministerial agreement (Ministry of Health) detailing the reasons for the emergency. The validity of the compulsory license will be maintained only while the grounds for the emergency declaration last.

The exploitation of the patent may be carried out directly by the state or a state contractor and it will not be the duty of the IP office to notify the holder of the patent with the compulsory license immediately upon its adoption, since the law establishes that the same will be done “when reasonably possible”.

The owner of the patent on which the compulsory license was ordered will receive financial compensation and may continue to exploit it directly.

The Executive Branch has not ruled on this request so far.

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CORRALROSALES

Income tax withholding rates

Regulation NAC-DGERCGC20-00000020 issued by the Internal Revenue Service and published on March 20, 2020 in the Official Registry Special Edition 459 established new rules to the income tax withholding regime:

  1. The following income tax withholding rate was modified:
Concept 

Previous
rate

New
rate
Acquisition of all types of movable property of a tangible nature 1%  1,75%
Payments that do not have a specific withholding rate 2% 2,75%
  1. It was clarified that the acquisition of goods of agricultural, poultry, livestock, beekeeping, bio aquatic, forest and meat origin, which are maintained in their natural condition, will be subject to 1% withholding regardless of whether an invoice or settlement for the purchase of goods or provision of services is issued.
  2. Additionally, it is clarified that this withholding rate (1%) applies to income from local production and marketing of agricultural activities, even if the taxpayer generating the income is subject to a special income tax regimen.

The new withholding rates are applicable beginning April 1st.

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CORRALROSALES

ASIPI – Interview with María Cecilia Romoleroux

ASIPI-Maria-Cecilia-Romoleroux-Intellectual-Property

DETAILS

DATE: 14-03-2020

CORRALROSALES IN THE NEWS: 

-María Cecilia Romoleroux

María Cecilia Rpmoleroux, Co-chair Host Committee, Quito

  1. The XXII ASIPI Workshops and Board of Directors will be held in November 2020. Its organization is always an interesting job for the Organizing Committee that you Co-Chair. Tell us how the work has been divided.

Paul and I have made a very good team, and the truth is that we have not divided the work; instead we are cooperating in all fields. The support of ASIPI’s young associates has been very valuable.

  1. What has been the most difficult in the organization of the Conference?

Agreeing with so many people is always complicated, but we have already achieved an agreement on everything. Quito is an easy city to show, since there is so much to see. The “Law Offices” event may always be the one that needs the most agreements, but the collaboration of Johana Aguirre and her team in this event has been invaluable.

  1. What does Quito have that differentiates it from other host cities?

Quito is a Cultural Heritage of Humanity with the best-preserved historical center in the region, making it a city that already offers a lot by itself. Now if you add to this the enthusiasm we have to show Quito during ASIPI, just try to picture the difference.

  1. Why should ASIPI members attend?

ASIPI is the most important Intellectual Property conference in the region, and if you add to this the fact of being able to know Quito, the first cultural heritage of America! And also to go to the Galapagos Islands, the result is an event that you cannot miss.

  1. We know that you are the first Ecuadorian to sit on the INTA board of directors, as well as the first Ecuadorian to be part of the Programming Committee of the International Association for the Protection of Intellectual Property (AIPPI). How did you achieve that honor? If a young associate asks you for advice on pursuing a similar career, what would you say?

I have indeed had the pleasure of having several positions of relevance, being one of my favorites Co-Chairing the “Quito 2020” Host Committee. My advice would be that these positions are only achieved by showing work and dedication to your own ideals and to each association. There are many “bumps” along the way but the key to success is to keep on going ignoring them, since they are only “bumps”.

If you want to read the full interview in Spanish (on page 14), click here

Ecuador: New measures against Covid-19

covid-19-labor.jpg

Since March 17, new limitations apply to mobility and the development of economic activities.

I. Measures enforced throughout the country

The President of Ecuador, through Executive Decree 1017, declared a state of emergency throughout Ecuador, further declaring the Covid-19 (coronavirus) as a pandemic and issued additional control measures.

  1. Freedom of movement and mobility of people in the country have been limited and in-person work activities on public and private sector were suspended from March 17 to 24.
  2. Exceptionally, the mobility of people will be allowed in the following cases:
    • Workers and employees of entities that provide basic services relating to health, security, fire, airports, terminals (maritime, river), banking, food supply; the export sector and its logistics chain, strategic sector, those related to animal care and breeding, consular services accredited in the country.
    • Members of the National Police and Armed Forces.
    • Medical, health or relief personnel
    • Public and private transportation of entities authorized to operate.
    • People who must commute for emergency reasons.
    • People who need to stock up on food, medicine or fuel.
  3. Curfew has been established prohibiting any circulation of vehicles and people from 9:00p.m. to 5:00 a.m. each day, except for the cases listed in a. to f. of Paragraph 2.
  4. From midnight on Tuesday 17 to April 5, domestic air operations are suspended. Exclusive air cargo operations, domestic and international, are permitted and operational.
  5. Since Wednesday, March 18 vehicle circulation is restricted for people who commute to stock up on food, medicine or fuel. Circulation is limited to:
Day

License plate ending on:

Monday, Wednesday, Friday, and Sunday 1 – 3 – 5 – 7 – 9
Tuesday, Thursday and Saturday 0 – 2 – 4 – 6 – 8

II. Measures enforced in the Metropolitan District of Quito

The Mayor of M.D. of Quito announced additional control measures applicable exclusively in M.D. of Quito from 5:00 am of March 17 until March 31:

  1. Suspension of the use of public spaces including sidewalks, streets, parks, pedestrian bridges, passages, among others. Only the mobility of the persons listed in Section I.2 above is allowed with certain additions.
  2. Suspension of business activity licenses. Licenses for food and medicine sales activities are exempted.
  3. Full restriction for private vehicles´ circulation and buses (motorcycles, bicycles, trolleybus, Ecovía, Metrovía systems). Motorcycles that transport food and medicines with a maximum of one passenger are allowed to circulate.
  4. Taxis can circulate to transport authorized persons, with limitation established by the Mayor.
  5. Closure of land terminals and airports, except for cargo operations.
  6. Circulation of children, senior citizens or people with disabilities is not allowed.

III. Public sector operation and the judicial function

  1. The suspension of in-person work activities includes the public sector, which will limit its activity to what can be carried out by teleworking. This means that the majority of processes are suspended.
  2. Several public entities such as the Internal Revenue Service, the National Customs Service of Ecuador, the Superintendence of Companies, the Superintendence of Control of Market Power, Ministry of Labor have expressly suspended the terms within pending administrative proceedings.
  3. The Judicial Branch suspended activities while the state of emergency established by the President of the Republic lasts. Likewise, judicial processes dates and terms are suspended.

 

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CORRALROSALES

New deadlines for filing tax returns

tax-returns-new-deadlines

Regulation NAC-DGERCGC20-00000012 issued by the Internal Revenue Service and published on March 9, 2020 in the Official Registry 157 established new deadlines for filing the following tax returns and annexes:

    1. Value added tax (VAT) taxpayers and VAT and income tax withholding agents, whose ninth digit of the tax ID (RUC) is 4, for this occasion, may file the February monthly tax return, until March 17, 2020.
    2. Individuals and undivided successions that are required to file the income tax return for the fiscal year 2019, for this occasion, may file their tax return until the following dates:
Ninth digit of the tax ID (RUC) 

Maximum date of filing the return

1 Marzo 11 th
2 Marzo 13 th
3 y 4 Marzo 19 th
5 y 6 Marzo 25 th
7 y 8 Marzo 27 th
9 y 0 Marzo 31 st
  1. Taxpayers required to file the Simplified Transactional Annex, may file the annexes from January to September 2020, for this occasion, according to the following dates:
Periodo de 2020 

Meses de presentación

January and February September 2020
March and April October 2020
May, June and July November 2020
August and September December 2020

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CORRALROSALES

Ecuador: the current conundrum of registered trade names that are not in use

trade-names-not-use-intellectual-property-katherine-gonzalez

Rights in trade names are acquired through their use; therefore, the registration of these before the Ecuadorian IP Office, or SENADI according to its official name and acronym, is merely declarative. There is currently a tendency to deny trademark registration based on already registered trade names, even if their use has not been demonstrated. This practice forces the applicant to file administrative or judicial challenges to try to remedy the situation.

A trade name is any sign capable of identifying a person or business establishment in the exercise of its economic activity. Trade names are independent of the corporate name or commercial name. They can be the same or different. In any case they can coexist.

While trade names and trademarks both relate to a distinctive type of sign, trade names have some important differences compared to the latter. These differences and their treatment by the IP Office are those that eventually cause practical inconveniences that will be examined in this article. Among the most relevant differences are:

  • The rights to trade names are acquired through use; thus, the Andean and national regulations expressly state, “The exclusive right over a trade name will be acquired with its first use in commerce.” On the other hand, rights over trademarks are acquired only upon registration with the IP Office.
  • The registration of a trade name with the IP Office is only declarative, since the right arises only with the use, regardless of whether it is registered or not.
  • The rights to a trade name end once its use ceases or the activities of the person or company that uses it cease. In contrast, rights to a trademark will remain as long as renewed or not cancelled or invalidated.
  • Trademarks protect products or services, while a trade name identifies a commercial activity.

For the protection and defense of trade names, as with trademarks, there is the right of opposition against applications for signs that, among other grounds for refusal, are capable of creating confusion or association in consumers.

Article 416 of the Law of the Social Economy of Knowledge, Creativity and Innovation (hereinafter, Ingenuity Law) provides that: Declaratory registration of the Trade Name (…) In any case in which the exclusive right over a trade name is alleged or claimed, its public use must be proven, such use being continuous and in good faith, at least within six months prior to said claim or allegation. The proof of use will correspond to the owner of the trade name. For the purposes set forth in this subsection, if the holder is not a party to the respective procedure, he will be notified ex officio.” (emphasis added)

Therefore, if there is a trade name (registered or not) that is in use, its holder may file an opposition, in which case he will have to prove the use of the trade name, and the IP Office will decide on the granting or refusal of the applied-for mark.

The problem arises when a trademark similar to a registered trade name is applied for, and the owner of the trade name did not file opposition or, despite having done so, did not demonstrate the use of the trade name, which is essential to prove the existence of the right.

According to the Ecuadorian IP Office database there are about 30,000 registered trade names, which, depending on the validity of the registration, are potential obstacles to the registration of a mark even though many of them are not in use. The use of trade names is the prerequisite necessary for their validity and existence to comply with the Andean and national regulations.

As a consequence of the foregoing, the Ecuadorian IP Office currently tends to deny the registration of trademarks ex officio because they are similar to already registered trade names even without proving proper use of the latter.

The problem arises from the fact that the IP Office accepts applications for registration of trade names without requiring proof of use, as well as from the non-application of Article 416 of the “Ingenuity Law” regarding the obligation to require proof of use of trade names when they are invoked as the basis for the refusal of a trademark application. Conversely, the IP Office, despite not requesting proof of use in the two cases above mentioned, does so at the time of renewing the registration of the trade name.

To circumvent the problems derived from this practice, the Authority should apply the previously mentioned Article 416, notifying the holder of the trade name registration of its obligation to demonstrate its use; only when evidence of use is filed should the authority assess whether there is sufficient legal basis to prevent the registration of a third party’s mark.

In conclusion: only when certain as to the existence of the rights over the trade name should the Authority rule on an opposition or a refusal ex officio. Unfortunately, this does not happen in most cases, although the highest administrative authority has repeatedly expressed that a registered trade name whose use has not been proven should not prevent the registration of a trademark.

This would avoid numerous problems for users who are forced to incur unnecessary expenses and to further extend the time to obtain the registration of their mark by trying to remedy the situation through administrative and judicial challenges, which can take several years.

Some specialists in the area see a solution in the possibility of filing cancellation actions for lack of use against registered trade names. SENADI has not maintained a unanimous approach on this issue, since, although there are cases in which these actions have been accepted (Resolution of August 25, 2010 procedure No. 08-973-AC-RR. Trade name “Compacalza Leopard ”), the most common approach of the IP Office is to declare the inappropriateness of these actions due to the legal nature of trade name registrations and their declarative nature (for example, resolution No. 121-2013-CPI-1S issued in the process 07-050-AC-2S on March 5, 2013 of the trade name “Natusal”).

In order to eliminate the problems examined in this article, the IP Office could incorporate into the relevant trademarks regulations – the draft of which they are currently working on – a norm that reiterates the correct application of Article 416 of the “Ingenuity Law.”

Katherine González
Associate at CorralRosales
katherine@corralrosales.com

Case Highlight: Custodial sentences for the distribution of counterfeit pharmaceuticals

pfizer-case-highlights-pharma

Six people involved in the counterfeiting of pharmaceuticals have been handed prison sentences, representing the largest group of people sentenced for being part of a distribution network of counterfeit medicines, being found guilty of illicit association.

The Attorney General’s Office with the support of Customs and the Tax Crimes Unit, after a follow-up of several months that included telephone calls and personal follow-ups, carried out a simultaneous raid on several commercial premises and homes located in the cities of Quito and Ibarra. They seized hundreds of thousands of pharmaceutical products and arrested seven people involved in the operation.

Almost everyone involved in the illegal operation had family ties to each other or worked together for several years, using legal businesses as façades including several stores located in the center of the aforementioned cities. Those involved also distributed original pharmaceuticals, in inappropriate conditions, and even lacked authorization to store or distribute such products.

Through a private prosecution, CorralRosales formally participated in the proceeding on behalf of Pfizer, thereby joining the Attorney General’s Office as prosecutor. This allowed for a joint effort in which several investigations were carried out confirming that the seized products were counterfeit and the degree to which each person charged had participated in the illegal network.

Within the earlier hearing, the judge accepted the charges presented by the prosecution and by CorralRosales against all of those involved in the operation, following which the case went to oral trial before a criminal court consisting of three judges.

In the oral trial hearing that lasted several days, all the evidence collected in the investigative process was disclosed, proving the existence of the offence and the participation of each person accused.

In an oral sentence issued at the end of the hearing, the judges unanimously decided to sentence six of the seven defendants with three years in prison, highlighting the seriousness of the crime and its potential risks to the health and safety of the public.

Those sentenced requested conditional release, which would have meant no prison time being served. The prosecution did not present any opposition to this request, but CorralRosales objected on behalf of Pfizer. In particular, we emphasized the gravity of the crime and the ease with which the same offence could be committed again. The judges granted our request, thereby rejecting the petition of defense.

Those sentenced have appealed against the ruling. To date, the appeal has not been resolved.

The importance of this ruling lies not only in the number of people sentenced, but also for the way in which the proceeding was handled, in particular by turning it into an “illicit association” case in the face of the procedural inconveniences of investigating and prosecuting the matter under the sale of counterfeit pharmaceuticals.

This is the second sentence obtained in Ecuador for the counterfeiting of pharmaceuticals, and again a recognized international laboratory intervened. In addition, CorralRosales acted as a private prosecutor in both cases.

The sentence complies with the control and sanction responsibilities of the judicial authorities. Additionally, it seeks to be an exemplary sanction for potential offenders, and sets a precedent that should be used in similar cases.

 

CORRALROSALES

Withholding percentage – dividends

withholding-percentage-dividends-tax

Regulation NAC-DGERCGC20-00000011 issued by the Internal Revenue Service establishes the withholding percentages applicable to the dividends distributed by entities with tax residence or permanent establishments located in Ecuador to: (i) individuals with tax residence in Ecuador; or, (ii) foreign entities which beneficial owners are individuals with tax residence in Ecuador.

The withholding percentage will apply over 40% of the amount of the dividend, according to the following:

Taxable income from
(basic tax bracket) 

Taxable income until
(surplus tax bracket)

Withholding over the
basic tax bracket

Withholding percentage over
the surplus tax bracket

20.000,00 0 0%
20.000,01 40.000,00 0 5%
40.000,01 60.000,00 1.000,00 10%
60.000,01 80.000,00 3.000,00 15%
80.000,01 100.000,00 6.000,00 20%
100.000,01 Forward 10.000,00 25%

The withholding receipt must be issued with the name of the individual with tax residence in Ecuador even if the amount to withhold is zero.

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CORRALROSALES